Laying the Regulatory Foundations for Carbon Capture and Storage in the EU a Legal Review of the Draft European Directive on Geological Storage of Carbon Dioxide

Laying the Regulatory Foundations for Carbon Capture and Storage in the EU A Legal Review of the Draft European Directive on Geological Storage of Carbon Dioxide

October 2008 About ClientEarth

ClientEarth is a dynamic non‐profit law, science and policy organisation based in London and Brussels. The organisation is composed mainly of activist lawyers working at the EU level and in the Member States. We bring together law, science, economics and politics to develop legal strategies which address the big environmental challenges.

Our mission is to bring dedicated legal expertise to the environmental movement across Europe. We operate by monitoring existing laws, developing policy, lobbying for effective legislation and, where necessary, pursuing strategic litigation. We act as legal advisors to non‐governmental organisations as well as MPs, MEPs and policy makers in the EU, the UK and other Member States.

ClientEarth works across the environmental agenda, and has programmes on climate and energy, environmental justice and marine protection.

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About this report

This report was written by Karla Hill and Ranak Pandya with input from James Thornton, Tim Malloch and Marta Ballesteros. This report was prepared with funding and support from the European Climate Foundation.

This report was published in October 2008 and is available from www.clientearth.org.

Please contact Karla Hill for further information.

Acknowledgements

The analysis in this report benefited from discussions with colleagues at the European Climate Foundation, Bellona, E3G, McKinsey and Company, and University College London’s Carbon Capture Legal Programme.

ClientEarth is a company limited by guarantee, registered in England and Wales, company number 02863827, registered charity number 1053988, registered office 2‐6 Cannon Street, London EC4M 6YH. www.clientearth.org Contents

Executive Summary i Key recommendations vi Introduction 1 Section 1: Overview of the draft Directive 5 1.1 Outline of the draft Directive 5 1.2 Amendments to existing Directives 6 1.3 Overview of legal reports 7 Section 2: Storage 8 2.1 International conventions 9 2.2 Exploration 10 2.3 Site selection 11 2.4 Storage permits 12 2.5 Operating, monitoring and reporting 14 2.6 Closure and post‐closure 15 2.7 Transfer of responsibility 17 2.8 Compliance and penalties 19 2.9 Contingent liabilities 22 Section 3: Transport 26 3.1 Access to networks 26

3.2 Physical transportation of CO2 27

3.3 Transport issues in Member States 29 3.4 European and international transboundary issues 29 Section 4: Capture 32 4.1 Relationship with EU ETS 32 4.2 IPPC Directive 32 4.3 Large combustion plants covered by the Directive 33 4.4 Definition of “capture ready” 33 Section 5: Implementation 36 UK case study 36 5.1 Property issues to be resolved at the national level 38 5.2 General measures 39 5.3 Demonstration of CCS 40 References 42

Executive summary

A comprehensive and effective regulatory framework is one of the key building blocks towards enabling the successful demonstration and deployment of carbon capture and storage (CCS) technology in Europe. The European Commission’s (the Commission) proposal for a directive on the geological storage of carbon dioxide (CO2) (the Directive) provides the basis for a standalone regulatory framework for storage activities which would otherwise have been prohibited or difficult under existing law. The Directive reflects recent international moves to amend international laws to facilitate CCS storage and transport.

The draft Directive accordingly aims to provide a comprehensive permitting system for geological storage of CO2. The regime is not, however, a complete regulatory framework for CCS technology. It does not require the use of CCS at power stations or industrial installations, and takes a weak enabling approach to incentivising the use of CCS and financing demonstration of the technology. In summary, the draft Directive:

• establishes a legal framework to create a permitting system and to address liability for environmental damage and risks to human health arising from the geological storage of carbon dioxide;

• requires Member States to ensure that certain new combustion plants are constructed “capture ready”, that is capable of being retrofitted with carbon capture technology in the future (Article 32); and

• sets out some basic principles to encourage the commercial development of CCS, for example by bringing CCS activities under the EU emissions trading scheme (EU ETS), and ensuring fair and open access to carbon dioxide transport networks and storage sites.

Storage. The key challenge for the Directive is to establish a CO2 storage regime that is adequate from an environmental and public policy perspective (safety and environmental integrity). The regime must also provide a clear and certain process for project developers to obtain necessary licences and permits, and a basis for developing, operating and monitoring storage sites with a clear understanding of the scope and extent of their liability for leakage of CO2, as well as for local environmental damage.

The draft Directive largely meets this challenge by proposing a comprehensive permitting regime for

CO2 storage together with a mechanism that will ultimately allow operators to transfer liability for storage sites to the competent authorities of the relevant Member State after injection of CO2 has finished and all post‐closure obligations have been fulfilled. The draft Directive also removes prohibitions on CCS which exist under current EU legislation, for example excluding CO2 captured and transported for storage from the definition of waste, although a company would still need to review local waste law if it is operating outside EU.

The basic premise of the permitting regime is that a proposed site should only be selected for geological storage of CO2 following a site characterisation and assessment that shows that there is no significant risk of leakage, and no significant environmental or health impacts are likely to occur. Exploration permits will be available so that potential storage sites can be identified, although an exploration permit does not automatically entitle the entity to apply for a storage permit for the area covered by an exploration permit, potentially limiting their commercial appeal.

In addition to demonstrating the suitability of a proposed storage site, operators applying for a storage permit must demonstrate that they have sufficient technical competence and provide full details of a monitoring plan, a corrective measures plan, an environmental impact assessment and a post‐closure plan. Such obligations will be met by financial security arrangements. Once issued, the competent authority has the power to review, update or withdraw the storage permit under certain conditions, for example, where it is notified of “significant irregularities or leakages”, although this provision would benefit from being strengthened to cover earlier instances where the authority becomes aware of such incidents.

Site characterisation criteria and criteria for the monitoring plan and the post‐closure monitoring plan are set out in annexes to the Directive, and the Commission can amend the criteria following the comitology procedure. This provides some flexibility for the regime to respond to developments in CCS technology and best practice.

Our legal review identified some areas where amendments could improve the permitting process. A number of these may be addressed in the final stages of consideration of the draft Directive by the European Parliament and the Council of the European Union (the Council), or may be dealt with in the implementation stages by Member States. A key omission in the Directive as drafted is a provision for storage permits to be transferred between operators in the event of a change in ownership of an operator or a storage site, which is a standard provision in environmental regimes.

The allocation of liability, including liability for leakage and damage, and the transfer of responsibility from commercial operator to a competent authority resulting from long‐term CO2 storage, is one of the most significant legal issues for CCS deployment. The draft Directive aims to strike the right balance in the liability regime between the government and private entities, by holding operators liable for any damage caused during their period of operation until the permit is terminated.

Liability for damage will occur both in terms of damage to the local environment and damage to the climate. In relation to local environmental damage, the Environmental Liability Directive (2004/35/EC)

(ELD) will apply to CO2 storage to ensure the prevention and remedy of any such damage by the operator.

Operators will have strict liability for remediating any damage to the local environment caused by leakage of CO2 or as a result of CCS activities. In addition to liability under the ELD, operators may also have liability (in tort) for negligence under national legal systems, where injury/damage has been caused to a third party. The use of the term “significant environmental or health impacts” in relation to site ii

selection is directly related to liability for damage to the environment under the ELD, a relatively new EU directive which is in the process of being implemented by Member States. The term “significant” is a well understood term in this context and is consistent with other risk‐based environmental regimes.

The ELD fails to provide a comprehensive framework to cover damage caused by CO2 leakage or storage activities because it applies only to certain types of damage such as biodiversity and land contamination that creates a significant risk for human health. Actions brought under the ELD or tort may be difficult to establish. The insurance industry has not yet taken a view on liability for leaked CO2 and it will be important to see how the industry responds.

An alternative approach to deal with this gap is to extend the concept of the corrective measures plan, which is required as part of the permitting system. The plan should be extended to specifically require measures to remedy or mitigate any negative impact on the environment or human health. This approach would ensure that any damage to the surrounding environment and human health in the course of storage operations under a permit would be dealt with as a compliance matter directly under the standalone storage permitting system. Such an amendment would provide greater clarity and certainty to operators and regulators, and build public confidence in the permitting system.

Damage to the climate system caused by the escape of CO2 from storage sites will result in a financial liability to surrender EU ETS allowances purchased at market rate. Under the revised EU ETS, CCS activities including capture, transport and storage will be covered. This approach to climate damage raises some interesting challenges because it brings unintended leakages of CO2 from a geological storage sites within the emissions trading scheme, which deals primarily with emissions from industrial installations. Without default rules for calculating the number of tonnes of CO2 deemed to have been emitted, it may also be very difficult to quantify the liability with accuracy where data cannot show the precise volume of CO2 leaked.

Moreover, the requirement to buy credits is not a penalty in itself; it simply puts the operator back into the EU ETS with liability for climate damage limited to the current carbon price. This creates an unusual situation whereby if the carbon price is relatively low compared to the costs of site monitoring and preventing leakages, the penalty may be an inadequate deterrent. The financial security required under the storage permit must also cover liability under the EU ETS. However, the EU ETS is not necessarily a comprehensive solution for imposing liability for climate damage as a result of leakage.

The draft Directive requires Member States to introduce penalties for infringements of the national implementing legislation. Although a minimum level is not specified, penalties must be “effective, proportionate and dissuasive”. It is unclear whether penalties apply to leakage of CO2 or only technical breaches of permitting rules. However, a robust system of sentences and fines should be in place to ensure operators incur a penalty in proportion to the nature of the breach and the damage caused. This should sit parallel to liability under the EU ETS, so that a sufficient deterrent against poor management of storage sites is imposed. There is likely to be a high degree of variation in sentences and fines for leakage across the EU, possibly affecting an operator’s decision as to where to locate their storage site.

iii

It would be helpful if the Commission clarified the relationship between the draft Directive on CCS and the recent draft Directive on environmental crime. If there is a link, it could be argued that penalties under the CCS regime should impose criminal sanctions where leakage of CO2 causes serious damage.

In recognition that operators will be reluctant to develop storage sites if they have indefinite and unlimited liability and legal responsibility in perpetuity, the Directive provides a mechanism for eventual transfer of responsibility after closure of a storage site. Operators will remain liable for storage sites until they can satisfy all post‐closure requirements at which point the relevant Member State must take over the responsibility for the closed storage site, including all future legal obligations. However, while operators can therefore work on the basis that they will eventually be able to transfer responsibility for the site to a competent government authority, an element of uncertainty remains because operators will have to meet the high test that “all available evidence indicates that the stored CO2 will be completely contained for the indefinite future”. The availability of such evidence will depend upon the adequacy of the initial site characterisation and selection and the management and monitoring of the site during operations. It may be necessary to prescribe best practice standards and criteria that must be met before transfer of responsibility can occur to provide greater certainty to operators.

Capture. The capture of CO2 at its industrial source is not the focus of the Directive. Existing legal regimes are expected to provide the legal basis for dealing with capture, specifically the integrated pollution prevention and control regime for permitting purposes and the EU ETS for incentive purposes. However, the Directive introduces the concept of “carbon capture readiness” and Article 32 of the draft Directive will require Member States to ensure that new combustion plants are constructed such that they are capable of being retrofitted with CCS technology.

The Commission has indicated that at this time, Member States should not be required to make the use of CCS mandatory for new power stations or to impose a specific date when CCS must be retrofitted either on existing power stations or on power stations consented as “capture ready”. The definition is controversial because it fails to address the risk of lock‐in to high carbon infrastructure in light of large numbers of new coal power plants being planned in Europe, and does not provide certainty as to whether a plant will ever be fitted with CCS. In particular, Article 32 does not require any financial or economic assessment of retrofitting CCS for new combustion plants. The concept of capture readiness as set out in Article 32 does not therefore reflect the multiple factors that will affect the feasibility of deploying CCS in the future and whether deployment will occur in practice.

The alternative approach to carbon capture readiness is to set an emissions performance standard setting the maximum amount of CO2 that may be emitted from a power station which gives energy companies the option of meeting the standard with suitable power generation including renewable energy, efficient combined cycle gas or combined heat and power, or coal with CCS operating from the outset.

Transport. The draft Directive relies on existing legislation for regulating transport of CO2. The exception is the provision for ensuring that operators are able to access CO2 transport networks and storage sites based on the principle of fair and open third party access.

Pipeline infrastructure will be subject to existing national planning systems and property (including compulsory purchase) law. This will include transboundary planning issues where proposed construction of pipelines across national borders within the EU will be subject to the environmental impact assessment (EIA) directive, which sets out procedures for projects with transboundary impacts. This will be a key challenge for planning and developing an integrated European pipeline infrastructure, and the EU should take a lead in a planning and coordination role although it will not have direct jurisdiction in relation to consenting of pipelines. The physical transportation of CO2 by pipeline will have to comply with applicable national health and safety legislation.

Demonstration of CCS. The Commission has indicated support in principle for up to 12 demonstration projects in the EU, but has not proposed how these would be financed. Apart from individual Member State‐level funding of CCS demonstration projects, proposals are also on the table for an EU‐led demonstration programme based on an EU ETS financing mechanism. An EU‐led demonstration programme would allow a coordinated commercial‐scale demonstration of the range of CCS technologies, demonstrate an integrated chain of CCS at a commercial level and allow CCS to be tested in a range of geographical locations and installations (power stations, industry). Such a demonstration programme would need careful design to ensure that projects selected for financing deliver the objectives of the programme and that any public funding of projects, including through allocation of allowances under the EU ETS, is granted subject to appropriate conditions to ensure that technology transfer occurs in the future.

Legislative process and implementation. The Directive remains in draft at this stage and is in the process of being considered by the European Parliament and the Council under the codecision procedure as part of the climate and energy legislative package. Further revisions may address some of the legal issues identified in this report. The implementation process may also resolve practical issues at Member State level. This will give developers more certainty to embark on such projects.

Once the Directive is published in its final form, Member States will have a period of time to implement (transpose) it into their national regulatory systems. Some Member States such as the UK are at a more advanced stage in establishing a regulatory regime. However, implementation is only effective with strict compliance and enforcement of the legislation by Member States and the Commission. The Commission should also continue to play an important role in ensuring that the regulatory framework facilitates and incentivises CCS as well as ensuring the safety of CCS in environmental and health and safety terms. In addition, the Commission should give further consideration to requiring the deployment of CCS, given the fundamental role CCS has to play in reducing CO2 emissions at both existing and new installations.

Key recommendations

ClientEarth makes the following legal and policy recommendations:

• The definition of corrective measures should be extended to specifically include measures to remedy or mitigate any negative impact on the environment or human health. This would ensure that damage is addressed as a compliance matter directly under the standalone storage permitting system, rather than under the Environmental Liability Directive which only applies in narrow circumstances.

• Member States should introduce a robust system of penalties for breach of permit conditions. This should sit parallel to liability under the EU ETS, so that a sufficient deterrent against poor management of storage sites is imposed. Further, the Commission should clarify the relationship between the draft Directive on CCS and the recent draft Directive on environmental crime.

• The provisions related to transfer of responsibility to the competent authority, in particular the

statement “all available evidence indicates that the stored CO2 will be completely contained for the indefinite future” should be clarified further. The Directive should provide guidance as to what the criteria for transfer should be.

• The permitting system could be improved with amendments such as the inclusion of a procedure to transfer a storage permit to another operator, an amendment to the Commission’s time period to review a draft storage permit, and requiring appropriate monitoring after a site has been closed and responsibility transferred to a competent authority.

• A financing mechanism is required for demonstration of CCS. A future EU‐led demonstration programme must be designed carefully to ensure that projects selected for financing deliver the objectives of the programme and that any public funding of projects, including through allocation of allowances under the EU ETS, is granted subject to appropriate conditions to ensure that technology transfer occurs in the future.

• The EU should provide a strategic role in planning and coordinating the development of a European transport network for CCS, subject to Member States’ own jurisdiction over national property and planning laws.

• Further consideration should be given to the risks of failing to achieve EU emissions targets by allowing fossil fuel power stations to be build “capture ready”, and to the alternative means of

managing the risk, such as an emissions performance standard for CO2 emissions from power stations and setting the date by which deployment of CCS will be required.

Introduction

“The only practical way to prevent CO2 levels from going far into the dangerous range, with disastrous effects for humanity and other inhabitants of the planet, is to phase out the use of

coal except at power plants where the CO2 is captured and sequestered.”

– testimony of Dr James Hansen, NASA and Columbia University in US coal case

“...the target of halving 1990 global GHG emissions by 2050 will never be met unless the energy potential of coal can be exploited without ballooning emissions”.

– Commission, 20 20 by 2020, Europe’s climate change opportunity

The European Union has a long‐standing commitment to action within the EU and to international leadership that will ensure that global average temperature increases do not exceed pre‐industrial levels by more than 2°C.1 As part of the European and global solution, it is imperative that safe and effective carbon capture and storage technology is demonstrated and deployed as quickly as possible to avoid dangerous climate change. The Intergovernmental Panel on Climate Change’s Special Report on CCS demonstrated that the capture and storage of CO2 has considerable potential as an option in a portfolio of climate change mitigation actions, particularly for electricity generation.2

The Commission’s major climate and energy legislative package, announced in January 2008,3 recognises that, while energy efficiency and renewables are in the long term the most sustainable solutions for both security of supply and climate, “we cannot reduce EU or world CO2 emissions by 50% by 2050 if we do not also use the possibility to capture of CO2 from industrial installations and store it in geological formations”.4

However, although the components of CCS – capturing CO2 at its industrial source, transporting liquefied

CO2 through a pipeline network, and injecting CO2 into geological storage structures – are known

1 Commission (2007) Commission “Communication on Limiting Global Climate Change to 2 Degrees Celsius: The way ahead for 2020 and beyond” COM(2007) 2 final.

2 Intergovernmental Panel on Climate Change Working Group III( 2005) “Special report on Carbon Dioxide Capture and Storage: Summary for Policymakers and Technical Summary”, Geneva: IPCC.

3 Commission (2008) “Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions: 20 20 by 2020 Europe's climate change opportunity”, COM(2008) 30 final.

4 See Explanatory Memorandum to the proposed Directive.

technologies, CCS has not yet been demonstrated as an integrated technology and its potential deployment on a large scale at fossil fuel power stations and industrial installations depends upon successful demonstration of the technology. The lack of a regulatory framework to enable CCS activities, in combination with existing regulatory frameworks that would prohibit or otherwise make CCS activities difficult, has been identified as one of the key barriers towards successful demonstration and deployment of the technology.

The package takes steps towards enabling CCS by proposing to establish a standalone regulatory framework for CCS. In addition, the Commission indicated its support for a network of demonstration plants across Europe and in key third countries.5 Under the revised EU emissions trading scheme (EU ETS),6 all CCS‐related activities will be covered and power plants and industrial installations will not be required to surrender allowances for CO2 emissions that are captured and permanently stored, giving operators an incentive that is limited to the EU ETS carbon price.

Overall, the climate and energy package takes a weak enabling approach to demonstration and deployment of CCS. In particular, the ambition of a priority EU demonstration programme for CCS is not supported by a real plan for delivery, and it is apparent that it will take many years before the carbon price established under the EU ETS will start to be a sufficient driver for CCS demonstration or deployment.7 Financing and incentivisation of CCS therefore remain major barriers, but are not the focus of this report.

Although CCS will not be brought forward solely on the basis of legislation, a sound regulatory framework is a necessary condition for large scale demonstration and deployment. The regulatory framework is also a first step towards developing industry and community confidence in storage projects, and public acceptance.8 The Directive comes as part of an ongoing set of initiatives in Europe aimed at establishing the technical, economic and regulatory conditions for CCS.

5 Commission (2008) “Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions: Supporting early demonstration of sustainable power generation from fossil fuels”, COM(2008) 13 final.

6 Commission (2008) “Proposal for a Directive amending Directive 2003/87/EC so as to improve and extend the greenhouse gas emission allowance trading system of the Community”, COM(2008) 16 final.

7 The BERR Consultation “Towards Carbon Capture and Storage” states that systems modelling undertaken by UKERC for BERR in early 2007 shows that in the UK, CCS would begin to be deployed from about 2025 (page 107). In addition, the analysis by McKinsey shows that the typical cost of a demonstration project is likely to be in the range of € 60‐90 per tonne CO2 abated and in the range of € 30 to 48 per tonne CO2 in Phase II of the European Union Emission Trading System up to 2030. See McKinsey & Company (2008) “Carbon Capture & Storage: Assessing the Economics”, para.7.3 for further discussion.

8 International Energy Agency (2007) “Legal Aspects of Storing CO2, Update and Recommendations”, IEA: 2007

The Commission’s proposed EC Directive 2008/0015 on the geological storage of carbon dioxide9 (the Directive) deals principally with storage activities in recognition of the legal and regulatory complexities in relation to storage, and leaves the regulation of capture and transport to be dealt with largely by existing regulatory frameworks.

Objectives of legal review

The purpose of this legal review is accordingly to assess the adequacy of the proposed regulatory framework from an environmental and public policy standpoint and as a basis for CCS projects to be licensed in a practical and commercial manner.

The legal review of the Directive considers the following questions:

i) Does the Directive establish a clear framework for permitting and monitoring storage activities while allowing for flexibility to learn from experience gained in demonstration of CCS?

ii) Does the proposed permitting process ensure that the potential risks associated with geological

storage of CO2 will be minimised and managed so that potential significant impacts on the local environment and on human health and safety are avoided, or in the case of adverse impacts, mitigated?

iii) Is there a clear basis for identifying and allocating liability for any environmental damage caused as a result of CCS activities?

These factors primarily relate to storage, which is the substance of the Directive. However, we also consider the implications of the Directive for the remainder of the chain of CCS activities: capture and transport.

In relation to transport, we outline the main existing regulatory frameworks that will apply to the development of transport networks and the physical transport of liquefied gas through those networks. The development of transport network infrastructure is a key issue for CCS but is not dealt with substantively by the Directive.

In relation to capture, the Directive proposes requiring Member States to ensure that new fossil fuel power stations are built “capture ready”.10 This approach reflects the decision of the Commission not to

9 Commission, COM(2008) 18 Final, Proposal for a Directive on the geological storage of carbon dioxide and amending Council Directives 85/337/EC, 96/61/EC, Directives 2000/60/EC, 2001/80/EC, 2004/35/EC, 2006/12/EC and Regulation (EC) No 1013/2006, COM(2008) 18 final.

10 Article 32 of the draft Directive.

require Member States to make the capture of CO2 from power stations and industrial installations mandatory at this time. At this time, this simple provision avoids confronting one of the most critical climate issues Europe must face: how to deal with the climate risks of new coal. The nature of capture readiness in terms of regulatory and climate risk and the alternative regulatory approaches to manage

CO2 emissions from power stations and deployment of CCS are discussed.

The structure of the review follows the structure of the Directive, starting with an overview of the Directive in Section 1 and consideration of the framework for storage in Section 2. The discussion of storage covers site selection and exploration, the permitting regime, operation, closure and post‐closure of storage sites including monitoring and transfer of liability. Section 3 considers the framework for transport of CO2 and Section 4 considers the Directive’s provision for requiring new fossil fuel power plants to be assessed on a “capture ready” basis. Section 5 addresses implementation and future issues, including a case study of UK regulatory framework for storage of CO2.

Limitations of legal review

The legal review set out in this report is intended as a high‐level review of the draft Directive and issues associated with the regulation of CCS activities. The scope of the review is limited to the extent that:

i) the Directive must be transposed by Member States and there will accordingly be some variation in transposition and implementation across Europe;

ii) for some aspects of CCS, existing EU regulatory frameworks will apply, and we have not considered the detail of how each Member State has transposed and implemented the relevant frameworks;

iii) for some aspects of CCS, national planning laws and property laws which are not the subject of EU‐level legislation will apply with significant potential variation and specific challenges for projects; and

iv) each CCS project will involve project‐specific considerations and issues.

In addition, the Directive remains in draft at this stage and is in the process of being considered by the European Parliament and the Council under the codecision procedure as part of the climate and energy legislative package. A number of amendments can be expected which may address specific issues identified in this review although it is expected that the overall shape of the Directive will be maintained. Subject to final amendments to the Directive, it is intended that this legal review may continue to provide a useful reference once the Directive comes into force and Member States are required to implement the Directive.

Section 1. Overview of the draft Directive

The primary application of CCS is to reduce CO2 emissions from coal or gas fired power stations.

However, CCS can also be used in other CO2 intensive industries, such as cement, iron and steel, oil and gas processing, and chemicals. The process consists of capturing the CO2 from its source, compressing it into a dense fluid, transporting it either by pipeline or ship to an onshore or offshore location, and injecting it underground in geological formations for permanent storage.

In the absence of a legal framework to facilitate the adoption of CCS, the proposed EC Directive 2008/0015 on the geological storage of carbon dioxide was published by the Commission on 23 January 2008 as part of its package on energy and climate change. The draft Directive establishes a legal framework for carbon capture and storage, leaving detailed implementation to Member States. The Directive is currently being considered by the EU Parliament and the Council under the co‐decision legislative procedure. The Directive may be enacted prior to the Parliamentary elections in June 2009 if agreement can be reached quickly. Implementing legislation by the Member States will take at least a further 12 months.

1.1 Outline of the draft Directive

The Commission’s Impact Assessment accompanying the Directive sets out the background analysis for the legal framework. Paragraph 4 of the Impact Assessment states: “The three components of CCS – capture, transport and storage – were considered separately. A conservative approach was taken, in the sense that the default option for regulating a CCS component was taken to be the existing legal framework that regulates activities of a similar risk (if one exists)”.11 The main scope of the draft

Directive is therefore to establish a new regulatory framework for CO2 geological storage, since existing legislation to control depositions under the land and seabed was not considered easily adaptable for licensing the storage of CO2. In relation to capture and transport, the Commission proposes to rely on existing provisions through amendment of currently operative Directives.

The recitals of the draft Directive establish the background to the legislation and provide a summary of the legal text of the Directive. The provisions of the draft Directive itself, are set out in eight chapters and two technical annexes as follows:

11 Accompanying document to the Proposal for a Directive of the European Parliament and of the Council on the geological storage of carbon dioxide, Impact Assessment, 23.1.2008, para. 4.

Chapter 1 (Articles 1‐3) Subject matter, scope and definitions Chapter 2 (Articles 4‐5) Site selection and exploration permits. Criteria to determine the suitability of a storage site are specified in Annex I Chapter 3 (Articles 6‐11) Storage permits Chapter 4 (Articles 12‐19) Operation, closure and post‐closure obligations. Criteria for establishing the monitoring plan are specified in Annex II Chapter 5 (Articles 20‐21) Third‐party access to transport networks and storage sites Chapters 6, 7 & 8 (Articles 22‐38) General provisions, amendments required to other EC legislation and provisions relating to transposition

1.2 Amendments to existing Directives

The draft Directive amends the following existing EC Directives to incorporate CCS activities:

Directive to be Description amended Directive relating to the assessment of the effects of certain public and private projects which are likely to have significant effects on the Directive 85/337/EC environment by virtue of their nature, size or location. This Directive will amended by Article 29 regulate the environmental impact assessment (EIA) of capture, pipeline transport and storage site infrastructure. Directive related to integrated pollution prevention and control arising Directive 96/61/EC from a wide range of industrial and agricultural activities including energy amended by Article 30 industries. This Directive has general application for regulating the risks of CO2 capture. Directive establishing a framework for water. This Directive will require Directive 2000/60/EC amendment to allow injection of CO in saline aquifers for the purposes of amended by Article 31 2 geological storage. Directive related to limitation of emissions from large combustion plants. Directive 2001/80/EC This Directive will be amended to require that all combustion plants over amended by Article 32 300 MW have suitable space to install storage equipment and have assessed the availability of suitable storage sites and transport networks. Directive 2004/35/EC Directive relating to environmental liability. This Directive will regulate amended by Article 33 liability for local environmental damage from storage sites. Directives 2006/12/EC Directives on waste and the shipments of waste. These Directives will be and 1013/2006 amended so that CO captured and transported for the purposes of amended by Articles 34 2 geological storage is excluded from the definition of waste. & 35

1.3 Overview of legal reports

A number of legal reports published prior to the release of the draft Directive by the International Energy Agency, FIELD, Accsept and Herbert Smith, identified the key components for a successful CCS regulatory framework.12 In summary, the reports concluded that a CCS legal regime should address the following points: i) simplification of treatment of CO2 under relevant legislation, for example, exemption of CO2 from waste legislation; ii) framework of best practice for site selection, construction and operation, to minimise risk of leakage; iii) resolution of property issues regarding CO2 and access to storage sites; iv) monitoring and verification of injected CO2 to protect health and safety, enhance public

confidence and verify credits for CO2 emission reductions; v) liability for leakage in the short and long term; and vi) encouragement to develop CCS, including providing incentives.

The draft Directive primarily focuses on creating an EU framework addressing points i), ii), iv), and v), and to a limited extent, iii). Although the Directive will bring CCS activities into the EU ETS system, the Directive as proposed makes no further provision for incentives for CCS such as contemplated by point vi), and in particular, no provision is made for demonstration of CCS.13

12 International Energy Agency (2005) “Legal Aspects of Storing CO2 Update and Recommendations”, IEA & OECD; Hendriks, C., Mace, M.J., Coenraads, R. (June 2005) “Impacts of EU and International Law on the Implementation of Carbon Capture and Geological Storage in the European Union”, FIELD and Ecofys; Acceptance of CO2 Capture, Storage Economics, Policy and Technology Report (Accept)( 21 December 2007) “Summary of the Main Findings and Key Recommendations” and Herbert Smith (November 2007) “CCS and Clean Coal: Legal Barriers to Development”, Investment in low‐carbon technology‐ the legal issues, published for The London Accord.

13 See discussion at Section 5.3.

Section 2. Storage

The main scope of the draft Directive is to establish a new regulatory framework for CO2 storage. This section looks in detail at the requirements relating to exploration and storage permits, site selection, monitoring and liability for the storage of CO2. Liability and safety are the principal concerns for CCS, since stored CO2 must be retained for very long periods of time. Liability for leakage could therefore occur centuries after the storage site has been decommissioned and the operator has ceased to exist.14 The Commission recognises that “The objective of the management regime is consistent application across the EU of the specified provisions so as to achieve in practice a high degree of safety and security of the storage site, and so increased confidence, both of regulators and of the public, in CCS as a sound climate mitigation option”.15 The storage provisions in the draft Directive seek to address some of these difficult liability and safety issues.

The process of storage involves compressing and injecting CO2 as a liquid into layers of porous rock deep underground, on land or below the sea floor. CO2 can be sequestered directly in geological formations including depleted oil and gas reservoirs, unmineable coal seams and deep saline reservoirs onshore and offshore. Injecting CO2 into oilfields can also be used for enhanced oil recovery, a common practice in the USA since the 1970s. Once injected, the CO2 becomes trapped by different methods and can be retained for millions of years. Features of storage sites with a low probability of leakage include highly impermeable caprocks, geological stability, absence of leakage paths and effective trapping 16 mechanisms. The proposed Directive does not permit storage of CO2 in the water column as it is considered to present a high environmental risk.

Current storage projects, such as the Statoil Sleipner project in Norway, have only been storing CO2 for a relatively short period, and there is a lack of evidence that this kind of storage is safe in the long term. However, the IPPC is confident about the security of long‐term storage, and claims that where the store has been safely constructed, the probability of leakage is proved to be very low. According to the IPPC, “the fraction retained in appropriately selected and managed geological reservoirs is very likely to exceed 99% over 100 years and is likely to exceed 99% over 1000 years”.17 Because of various trapping

14 Herbert Smith (November 2007) “CCS and Clean Coal: Legal Barriers to Development”, Investment in low‐carbon technology‐ the legal issues, published for The London Accord, p.24.

15 Commission (2008) Accompanying document to the Proposal for a Directive of the European Parliament and of the Council on the geological storage of carbon dioxide, Impact Assessment, 23.1.2008, para. 133.

16 Intergovernmental Panel on Climate Change Working Group III (2005) “Special report on Carbon Dioxide Capture and Storage: Summary for Policymakers”, Geneva: IPCC “, p.11.

17 ibid. p.13.

mechanisms, storage will become more secure over longer timeframes. The key to safe storage will be a rigorous process of site characterisation, risk assessment and long‐term monitoring.

The draft Directive contemplates both onshore and offshore storage of CO2, allowing Member States the flexibility to select the most suitable option for their geographical location (Article 4(1)). It is important that CCS demonstrations across the EU test onshore and offshore methods so that practical issues in the deployment of technology are identified for both options.18 Helpfully, Article 34 of the draft Directive removes CO2 captured and transported for the purposes of geological storage from the definition of “waste”. This provision removes a significant barrier to the adoption of CCS, as the classification of a substance as waste imposes strict regulatory controls. Since the CO2 will not be waste, the Landfill

Directive will not apply to the storage of CO2 onshore.

In terms of the regulatory process, the storage stage of the CCS process consists of various phases: site selection, permitting, operation and monitoring, closure and decommissioning, and transfer of liability to the state. The storage permit provisions in the draft Directive apply once the operator starts to put in place the necessary infrastructure to inject CO2 into any part of the licensed site. Once injection has permanently stopped and the site is closed, there will be a period during which time the facilities and pipelines will be decommissioned. The operator will retain liability until the permit is terminated and liability is transferred to the state. Central to the life of the storage site is the activity of monitoring in order to ensure that the site is behaving as predicted and to detect any leakages. This will take place throughout the entire process, from operation to post‐closure and post‐transfer.

2.1 International conventions

Recent amendments to international conventions are specifically aimed at facilitating the offshore storage of CO2 underground. The Convention on the Prevention of Marine Pollution by Dumping of Wastes and Other Matter (the London Convention) is an international agreement that prohibits dumping waste in the sea. However, it was amended in November 2006 to allow the sub‐seabed disposal of CO2 streams, “if they consist overwhelmingly of carbon dioxide". The amendment came into force in 2007 and provides a basis in international environmental law to regulate CO2 storage below the sea. Similarly, the Convention for the Protection of the Marine Environment of the North‐East Atlantic (the OSPAR Convention), governing the deposition of material into the sea and seabed off northern and western European states, was also amended in June 2007 to permit the storage of CO2 in geological formations under the seabed. The amendment still needs to be ratified by at least seven contracting parties before it can enter force. Until then it will not be possible to use existing offshore structures in the north‐east Atlantic for carbon dioxide storage. The OSPAR Commission also announced Guidelines for Risk Assessment and Management of CO2 streams in Geological Formations, which are referenced in

18 The Shell CO2SINK near Berlin is the first CO2 onshore storage project in Europe. For further information, see “Going Underground with Greenhouse Gas”, Shell World, 15 August 2008.

Annex I of the draft Directive. Operators will be required to comply with the guidelines in Annex I when assessing the suitability of a storage site under Article 4 of the draft Directive.

Part A: Storage permitting process

Discussion of the storage provisions in the draft Directive is divided into two sections. Part A considers the process as prescribed in the draft Directive. Part B is a wider discussion on liability for leakage of

CO2.

2.2 Exploration (Article 5)

Article 56(1) of United Nations Convention on the Law of the Sea 1982 (UNCLOS) provides that a coastal state has rights to the exploration and exploitation of the seabed and its subsoil, and the waters above it in respect of its exclusive economic zone.19

Member States may wish to allow a period of exploration in order to determine suitable sites for storage of CO2. Under Article 5 of the draft Directive, exploration is subject to a permit, valid for two years and renewable for a further two years. During this time, the holder of the permit has the sole right to explore a limited volume area, and no conflicting uses of the area are permitted. Permits are to be granted on the basis of objective, published criteria. As currently drafted, the time restriction imposed on an exploration permit does not allow a Member State its own flexibility to determine the period of duration.

In addition, the draft Directive does not permit conflicting use of the seabed and therefore may limit areas of exploration to places where there are no existing rights, thus reducing the options to locate potential storage sites. Exploration permits should seek to preserve the interests and property rights of third parties holding pre‐existing hydrocarbon, coal or other mineral production licences, but at the same time ensure that exploration can be undertaken provided there is no conflict of use. This should also apply vice versa, so that other uses of the seabed would be permitted even if an exploration permit had been granted, provided there was no conflict. It is thought that this issue will be resolved in the final Directive, as a number of Member States are in favour of multiple uses of the seabed.

19 UNCLOS is an international agreement which defines the rights and responsibilities of nations in their use of the world’s oceans. Under Part V of UNCLOS, coastal states can claim rights within an area, known as the exclusive economic zone, which forms part of the area of the continental shelf and extends from the edge of the 12 nautical miles limit of the territorial sea for a further distance of 188 nautical miles. It also provides jurisdiction for the establishment and use of installations and structures in the area. Under Article 193 of UNCLOS, states must also act in accordance with their duty to protect and preserve the marine environment.

The draft Directive is silent on the issue of preferential treatment of holders of exploration permits to apply for a storage permit. On one hand, a holder of an exploration permit would have a greater incentive to undertake and invest in exploration work by having priority in the award of a storage permit, subject to meeting the necessary application requirements. However, this may prejudice other operators applying for a storage permit but not involved in the site exploration phase. A commercial solution is likely to be that holders of exploration permits will sell the intellectual and commercial rights to the data they gather to operators of a storage site, so that they are compensated for their initial preparatory work. It is also unclear whether the draft Directive allows transfer of an exploration permit to a third party, as such rights would be commercially valuable. Member States may wish to clarify how they will treat exploration to identify suitable storage sites with a view to ensuring incentives are sufficient.

2.3 Site selection (Article 4)

Definitions

Article 3 contains definitions in relation to the draft Directive.

The storage complex is defined in Article 3(6) of the draft Directive as “the storage site and surrounding geological domains which can have an effect on overall storage integrity and security (i.e., secondary containment formations)”. This space is relevant to the area covered by the exploration permit.

The storage site is more narrowly defined in Article 3(3) as “a specific geological formation used for the geological storage of CO2 ”, and will be the actual site into which CO2 is injected, as covered in the storage permit.

Leakage is defined in Article 3(5) as “any release of CO2 from the storage complex”.

The definition of leakage importantly extends beyond the storage site, to the entire storage complex. This is relevant for monitoring, as the operator will need to monitor a wide area in order to detect potential leakage pathways and adverse effects to the surrounding environment or human health.

Article 4(2) of the draft Directive states “A geological formation shall only be selected as a storage site, if under the proposed conditions of use there is no significant risk of leakage, and if no significant negative environmental or health impacts are likely to occur”. The security of carbon dioxide storage in geological formations depends on careful storage site selection followed by characterisation of the selected site. Criteria for characterisation and assessment are specified in Annex I of the draft Directive, which contains international guidelines on site selection.20 Competent authorities across Member States are

20 Annex I of the draft Directive is based on the elements described in the OSPAR Guidelines for Risk Assessment and Management of Storage of CO2 Streams in Geological Formations.

advised to share best practice in the regulation of CO2 storage sites in order to ensure that such guidelines are implemented consistently. It will also be important that the guidelines are suitably flexible to cover all types of storage sites. The relationship between the wording in Article 4(2) and liability under the Environmental Liability Directive is discussed further in section 2.9.

Treatment of EOR

Enhanced oil recovery (EOR) is a process whereby CO2 is injected into oil fields to increase the flow rate of oil, forcing out the remaining pockets of oil that would otherwise prove difficult to extract. Carbon dioxide injected for the purposes of EOR is currently not subject to the controls of the draft Directive. This is not an issue where EOR activities do not involve the permanent storage of the carbon dioxide, but there could be instances where CO2 is injected as part of the EOR process and later becomes permanently stored. The UK consultation on CCS recommends that EOR projects which intend to permanently store should fall under both petroleum and CO2 storage licensing regimes. This is a weakness in the draft Directive, which may be addressed in the legislative process.

2.4 Storage permits (Articles 6‐11)

Overview of the application process

When applying for a storage permit, an operator must supply the information set out in Article 7, including proof of technical competence, a detailed characterisation and assessment of the potential site, a monitoring plan, a corrective measures plan, an environmental impact assessment and a post‐ closure plan backed up by financial security to cover closure costs and potential leakage liabilities.

Technical competence

Article 8(1)(b) provides that a storage permit will only be issued if the competent authority is satisfied that the management of the site will be in the hands of a “natural person who is technically competent and reliable”. This provision should also be extended to legal entities that are financially sound and posses the necessary technical competence. In practice, management may be exercised by more than one person, particularly for a large and complex site. Similar requirements exist under the waste licensing regime, which require a detailed assessment of technical competence. It will be for Member States to specify the exact requirements under this section. However, it is important to consider the qualifications, level of experience and understanding of whoever is going to assume this important role. Furthermore, proof of technical competence under Article 7(2) should apply to not just the applicant (who in theory could be anyone), but to the operator as well.

Permit review by Commission

Articles 8(2) and 10 of the draft Directive require Member States to submit all draft storage permits to the Commission before they are finally issued. Under the original draft Directive, the Commission may issue an opinion on the draft permit within six months, taking a cautious approach in order to ensure consistency in the early phase of implementation. These review provisions may, however, be considered unduly bureaucratic for storage site operators, who require a greater degree of commercial certainty on application for a storage permit. A more practical approach would be to allow Member States to issue storage permits without interference, informing the Commission when new permits are issued. Competent authorities should have the option to request a non‐binding opinion from the Commission if they desire. Alternatively, the Commission’s right to review could be retained, allowing the Commission a shorter period in which to issue their opinion on the draft permit as a compromise.21

Changes to permits

Article 11 of the draft Directive requires the competent authority to be informed of any changes planned in the operation of a storage site and allows for permit conditions to be updated accordingly. Substantial changes under Article 11(2) should also require an environmental impact assessment to determine if the change would cause adverse environmental effects. Article 11(3) allows the competent authority to review, update or withdraw the storage permit under certain conditions, including notification of “significant irregularities or leakages” (Article 11(3)(a)). This provision could be made stronger and extended to instances where the authority is not just notified, but made aware of such incidents, thus ensuring that knowledge of irregularities will be sufficient to permit the authority to take action. Operators may find that the requirement in Article 11(3)(d) to review the permit every five years creates unnecessary uncertainty. Once a permit has been withdrawn, the competent authority will take over responsibility for the storage site, until a new storage permit has been issued. Costs incurred by the competent authority will be recoverable from the former operator.

Transfer of permits between operators

The draft Directive does not make explicit reference to the transfer of a storage permit to another operator. This is a frequent issue in corporate sale and purchase transactions, where the vendor may sell the company’s shares or assets to another operating company. Many environmental regimes have specific procedures in the event of a change of ownership in order to ensure that obligations under the permit transfer to the new operator. Article 11 of the draft Directive relates to changes planned in the operation of a storage site, and would probably imply cases where there is a change of operator. In such

21 For further discussion on the range of amendments proposed, see European Parliament, Committee on the Environment, Public Health and Food Safety, Part II, 24.7.08, Amendments 288‐295.

instances, the incoming operator would require certainty that it did not have to comply with the process of applying for a new storage permit, but would be granted one on the same conditions, subject to proof of technical competence and financial security requirements. It would be helpful if the Commission or Member States’ implementing legislation clarified this issue.

2.5 Operating, monitoring and reporting (Articles 12‐16)

The draft Directive recognises that the CO2 stream may contain impurities when it is captured from the source. Article 12 of the draft Directive mirrors the language in the amended London Convention by stating that “A CO2 stream shall consist overwhelmingly of carbon dioxide”. The operator is required to demonstrate that the CO2 stream does not pose a significant risk to the environment prior to injection and storage and concentrations of other substances do not threaten the integrity of the storage site and transport infrastructure. The operator must also keep a register of the quantities and characteristics of the CO2 streams delivered.

Article 13 and Annex II of the draft Directive set out the operator’s monitoring requirements of the injection facilities, storage complex and surrounding environment, and details of the monitoring plan.

These requirements are an essential element of the CO2 storage process in terms of detecting leakage which may result in damage to the environment and human health. Monitoring will also assess whether the CO2 will be contained for the indefinite future and determine when liability can be transferred. In general, the provisions for how and when monitoring should occur are fairly comprehensive. Article 13(2) requires the operator to design a monitoring plan for approval by the competent authority. The monitoring plan is a living document and should be updated at least every five years to account for technical developments. Results of monitoring should be reported to the competent authority at least once a year (Article 14(1)). The draft Directive does not specify which monitoring technology will be used, but stipulates in Annex II that this should be based on “best practice available at the time of design”. The monitoring plan must specify the monitoring technology employed and the justification for the technology choice (Annex II, 1(1.1)(b)).

A further safeguard to ensure safety is the requirement for competent authorities to develop a system of inspections of CO2 storage sites to check compliance with the Directive and monitor environmental effects. Competent authorities are also required to prepare a report on the results of inspection (Article 15).

Operators are required to put together a corrective measures plan to be implemented in the event of significant irregularities or leakages. In such cases, Article 16 requires the operator to immediately notify the competent authority and take the necessary corrective measures, as approved by the competent authority in the corrective measures plan. Where the operator fails to take the necessary corrective measures, the competent authority can do so on its behalf and recover the costs from the operator.

Monitoring requirements in Member States are likely to be refined over time, as modelling of CO2 storage sites gets more sophisticated. Member States should be encouraged to share best practice and update guidelines on monitoring and verification to reflect international standards and new developments in technology. Under Article 27 of the draft Directive, the Commission is able to amend the Annexes to respond to best practice.

Under Article 24, the competent authority is required to maintain a register of all closed storage sites. Member States may wish to keep a central register of exploratory, operating and closed sites, to ensure transparency of information.

Storage access

Member States must also ensure that users are able to gain access to CO2 storage sites under Article 20. A detailed discussion of this requirement is considered together with transport access, in section 3.1 below.

2.6 Closure & post‐closure (Article 17)

Closure of a CO2 storage site is defined in Article 3(18) of the draft Directive as “the definite cessation of

CO2 injection into that storage site”. Post‐closure, defined in Article 3(19), means “the period after the closure of a storage site, including the period after the transfer of responsibility to the competent authority”.

The principal obligations on the operator of a CO2 storage site actually take effect once the site is closed, after which the CO2 will be stored long term. Where a storage site is closed following the termination of injection, Article 17(2) provides that operator remains responsible for “maintenance, monitoring, control, reporting, and corrective measures pursuant to the requirements laid down in this Directive, as well as for all ensuing obligations under other relevant provisions of Community legislation, until the responsibility for the storage site is transferred to the competent authority pursuant to Article 18(1) to (4)”. During this period, and prior to transfer, the operator is also responsible for sealing the storage site and removing the injection facilities. Such obligations shall be undertaken on the basis of a post‐closure plan, approved by the competent authority, and again, monitoring and verification will play a key role at this stage. The draft Directive gives little guidance as to what details the post‐closure plan should contain, although it should be based on best practice. In the event that a storage site is closed after a permit has been withdrawn early due to non‐compliance under Article 11(3), the competent authority shall be responsible for maintenance and monitoring, as described in the post‐closure plan. The relevant provision in Article 17(4) seems to absolve the operator of any liability in this case. This deficiency

implies that where the competent authority has had to step in, it is unable to recover costs from the operator or rely on the operator’s financial security.

Financial Security

Article 19 of the draft Directive requires the applicant to have financial security in place to ensure that all obligations under the permit can be met until the point at which responsibility is transferred to the competent authority. Such obligations will include closure and post‐closure requirements and will remain until the permit is terminated. During this time, the operator will be required to monitor and maintain the store, as well as maintain and decommission the facilities used to inject carbon dioxide. BERR estimates the scale of obligations at end of injection period could be anything from £20m‐325m over 30 years (mainly depending on the cost of decommissioning).22 Article 19(1) also requires the security to factor in liability which may arise under the EU ETS, where allowances would have to be purchased at market rate and surrendered in the event of a leakage causing climate damage.

A financial guarantee ensures that independent funds can meet the costs of these obligations if the operator fails to do so. This is intended to protect the public purse in the event of a failure by the operator during the permit period. The draft Directive requires financial security to be in place prior to the submission of the application for a storage permit. This may place an undue cost on operators who have not yet been granted a permit. A commercial approach would be to require financial security prior to the issue of the storage permit. Under Article 14(3), proof of the maintenance of financial security must be submitted by the operator to the competent authority at least once a year.

Member States should specify the acceptable forms of financial security with regard to the range of products available on international markets and the associated costs. Such requirements should not place an unreasonable burden on small and medium companies. It is appropriate for Member States to draw on the experience of other licensing and permitting regimes, including petroleum and waste to ensure that adequate and robust financial guarantee arrangements are in place.

The Directive as currently drafted does not establish a reserve fund to cover liabilities arising after the transfer of responsibility. The advantage of such a fund is that it would require all storage operators to contribute annually to a central fund once CO2 injection had commenced into the site until responsibility is transferred. The fund could provide additional financial security to Member States to cover the costs of remedying damage to health, property or the environment which were caused by the operator but arise after transfer of responsibility and/or in the event that financial security is inadequate. It is unclear whether such a fund could be used for other activities after transfer, for example, if the state wished to conduct a seismic survey or continued monitoring requirements. The establishment of such a fund is

22 Department for Business, Enterprise and Regulatory Reform (June 2008) “Towards Carbon Capture and Storage: A Consultation Document”, para. 4.48.

being advocated by certain MEPs on the Committee on the Environment, Public Health and Food Safety23.

2.7 Transfer of responsibility (Article 18)

The transfer of responsibility requirements in Article 18 of the draft Directive aim to strike the right balance in the liability regime between the government and private entities. The issue of long‐term liability is summarised in the Accsept report: “If, for example, a company can be held liable for leakage or migration of CO2 from a storage site several decades (or more) into the future then it is very unlikely that that company will be prepared to invest in CCS activities. Weighed against this consideration are the high procedural standards that are required to ensure the integrity of storage sites. Without clarity on this issue, potential project participants will remain concerned about exposing themselves to an unquantified risk in the future”.24

The Directive recognises that operators will be reluctant to assume legal responsibility in perpetuity. Article 18(1) requires Member States to take over the responsibility for the closed storage site, including all future legal obligations, “when all available evidence indicates that the stored CO2 will be completely contained for the indefinite future”. The operator must prepare a report to show these criteria have been met, and submit it to the competent authority to approve the transfer of responsibility.

However, the wording in Article 18(1) causes some uncertainty for Member States and operators. There is no guidance as to what the criteria should be and therefore the terms “all available evidence” and

“completely contained” are open to wide interpretation. In particular, the requirement to show that CO2 is completely contained will be impossible for operators to demonstrate, as there will always be a slight risk of leakage even if the site has been monitored for many years prior to transfer. The wording is therefore confusing and does not give operators comfort that they will be able to meet this high standard.

Since ultimate liability will rest with the state under the regime, it is strongly recommended that the Directive clarifies this provision. One approach would be to specify that the criteria for storage integrity are set out in the storage permit and to require that such criteria are satisfied before transfer is authorised. This would ensure that the criteria are known upfront. It would helpful if the Commission produced guidelines to specify the criteria and how they should be fulfilled.

23 European Parliament, Committee on the Environment, Public Health and Food Safety, Part III, 24.7.08, Amendments 372‐374.

24 Acceptance of CO2 Capture, Storage Economics, Policy and Technology Report (Accept)( 21 December 2007) “Summary of the Main Findings and Key Recommendations”.

It has also been suggested by a number of MEPs on the European Parliament Committee that the Article specify a time period, for example 50 or 100 years, in which the operator remains liable prior to transfer.25 This would avoid transfer to the state occurring prematurely and give the operator an incentive for proper site management and maintenance during site operation and the post‐closure period. However, this approach was rejected by the Commission’s impact assessment on the basis that it would involve differential treatment of storage sites of different characteristics and risk profiles with implications for competent authorities taking over responsibility (as well as implications for competitive distortion).26

Article 18(2) requires the Commission to review all draft decisions to transfer responsibility for storage sites to the competent authority, and gives the Commission the discretion to issue an opinion within six months. Whilst there is concern that this review period adds uncertainty for the operator, the extra time at this final stage would be insignificant relative to the long period of closure. Review at the Community level will be beneficial to ensure consistency in implementation of the transfer requirements.

Monitoring of the storage site may cease after responsibility is transferred under Article 18(5), but the Directive requires monitoring to be reactivated if any leakages or significant irregularities are identified. This provision seems contradictory, as if monitoring is allowed to cease after the transfer of responsibility, it might mean that leakages requiring the resumption of monitoring would only be detected once the damage had already been done. A more coherent approach would require monitoring after transfer, but reduced at a level which allows leakages to be detected. This would also be consistent with the precautionary principle which requires that conservative measures should be taken where scientific knowledge is not complete.27

Article 18(6) of the draft Directive provides that there will be no recovery of costs from the former operator after responsibility has been transferred to the competent authority. A safer option would qualify this clause to account for instances where the operator may have supplied inaccurate or false information to bring about the transfer of responsibility. In such cases, the site operator should be liable for costs to remedy damage. Costs to cover monitoring and remediation after the transfer of responsibility could be covered by a fund, financed by the operator's contributions, as described above.

25 European Parliament, Committee on the Environment, Public Health and Food Safety, Part III, 24.7.08, Amendments 339 and 340.

26 Commission (2008) “Accompanying document to the Proposal for a Directive of the European Parliament and of the Council on the geological storage of carbon dioxide, Impact Assessment”, 23.1.2008.

27 Hendriks, C., Mace, M.J., Coenraads, R. (June 2005) “Impacts of EU and International Law on the Implementation of Carbon Capture and Geological Storage in the European Union”, FIELD and Ecofys.

2.8 Compliance and penalties

Corrective Measures

The draft Directive sets an overall framework for compliance, although the operator’s detailed obligations will be specified in the conditions to the storage permit, issued by the competent authority. Under Article 11(3), the competent authority may withdraw the permit where there has been breach of a permit condition or a significant irregularity or leakage, or risk of such leakage.

Article 16 of the draft Directive requires operators to take corrective measures in the case of significant irregularities or leakages. Corrective measures are defined in Article 3(17) as “any measures taken to correct significant irregularities or to close leakages in order to prevent or minimise the release of CO2 from the storage complex”. Such measures must be specified in the corrective measures plan, submitted as part of the permit application process and approved by the competent authority. The competent authority may request that the operator takes different or additional measures to those set out in the corrective measures plan, and may take such measures itself, recovering costs from the operator.

In most cases, careful monitoring would be able to detect instances of leakages. However, it will be particularly difficult to monitor instances where leakage occurs from the perimeter of an unconfined geological space such as a saline aquifer. Operators will have to overcome the hurdle that the site demonstrates no significant risk of leakage at the stage of site selection. However, although risk assessment and modelling will help ascertain whether such unconfined storage sites will be secure, Member States should ensure that operators of such sites have identified the necessary corrective measures and hold adequate insurance to cover any liability for leakage.

Since implementation of the corrective measures plan will be the primary obligation on the operator in the event of a leakage, such measures must ensure that they stop rather than simply minimise leakage of CO2. As currently drafted, the Directive relies on the Environmental Liability Directive and actions in negligence to address liability for damage to the environment and human health. However, these mechanisms are not adequate as actions will be difficult to bring (discussed further in section 2.9). Therefore the definition of corrective measures should be extended to specifically include measures to remedy or mitigate any negative impact on the environment or human health. This approach would ensure that any damage to the surrounding environment and human health in the course of storage operations under a permit would be dealt with as a compliance matter directly under the standalone storage permitting system. Such an amendment would provide greater clarity and certainty to operators and regulators and build public confidence in the permitting system.

Penalties

Article 26 of the draft Directive requires Member States to introduce penalties for infringements of the national legislation. As leakage of CO2 from a storage site can have potentially disastrous effects on the environment and human health, the penalty system must act as a warning to operators of storage sites and signal the importance of careful site management. However, it is unclear from the draft Directive 19

whether penalties would apply for leakage of CO2 causing damage. The Directive suggests that liability under the ELD, the EU ETS or tort would provide the necessary remedy, rather than a separate penalty system for damage.

In May 2008, the Council confirmed support for a proposal for a Directive of the European Parliament and of the Council on the protection of the environment through criminal law.28 The Directive will force national governments to apply criminal sanctions to those causing deliberate or seriously negligent damage to the environment, filling a gap in the area of environmental protection. Criminal sanctions are limited to areas where the EU has competence, leaving national legislation intact in other areas. Under the agreed text of the Directive, unlawful discharge or emission of substances into the air, soil or water in a way likely to cause "death or serious injury to any person" or "substantial damage" to the environment will be a punishable crime. This would cover instances of leaked CO2.

The Commission had originally hoped to impose sentences ranging from one to ten years' imprisonment or fines of €300,000 to €1,500,000, depending on the severity of the offence. However in a ruling by the European Court of Justice, it was held that the Commission did not have the authority to fix the type and level of these penalties; this should be left to the discretion of Member States. It would helpful if the Commission clarified the relationship between the draft Directive on CCS and the draft Directive on environmental crime. If there is a link, it could be argued that penalties under the CCS regime should impose criminal sanctions where leakage of CO2 causes serious damage.

Article 26 of the draft Directive requires that penalties must be “effective, proportionate and dissuasive”. However, the lack of harmonised penalties across the EU for both CCS and environmental crimes could lead to a large variation in fines and sentences across Member States. It will therefore be up to Member States to ensure that a robust system of fines is in place. This should act as a deterrent against poor management of storage sites and impose a penalty on operators to reflect the damage they cause.

Part B: Liability for Leakage

Under the Directive, leakage of stored CO2 will be the event that determines liability. Liability for damage resulting from long‐term CO2 storage is perhaps the single most significant legal issue for CCS deployment. The draft Directive enshrines the polluter pays principle, holding operators liable for any damage caused during their period of operation until the permit is terminated. Liability for damage will occur both in terms of damage to the local environment and damage to the climate (Recital 23). As regards the local environment, the Environmental Liability Directive (2004/35/EC) will apply to CO2 storage, to ensure the prevention and remedy of any such damage by the operator. Liability for climate damage as a result of leakage will require the surrender of EU ETS allowances.

28 Directive 2007/0022 was proposed by the Commission in February 2007.

Rapid CO2 leakage may result from injection well failures, creating a sudden release of CO2 which can be quickly detected. Gradual leakage occurs through undetected faults, fractures or leaking wells and can affect drinking water aquifers and ecosystems, where CO2 accumulates in the zone between the surface and the top of the water table.29 Societe Generale identify the key components of risk management as site selection, risk assessment, monitoring and verification (throughout the carbon storage life cycle), and remediation planning. This will ensure reduced risk of leakage, information on the behaviour of 30 injected CO2 over time and stakeholder acceptance.

The storage of CO2 will place a number of obligations and duties on the holder of the permit. Some of these will be definite liabilities, for example, the store will have to be monitored, and the facilities used for the injection of carbon dioxide will have to be maintained to an acceptable standard and removed at the end of their useful life. Such obligations will be met by financial security arrangements where applicable, and will fall to Member States in the event they are not adequately discharged.

Others will be contingent liabilities i.e. they will only arise if there is some unforeseen event, where the carbon dioxide migrates beyond the defined boundaries of the store. The scale of liability is impossible to estimate since it will depend on the amount of carbon dioxide that leaks and the nature of the leakage. The most likely source of a leak is from a faulty borehole. Work done for BERR concluded that such an event had a median probability of 37% occurring over 1000 years. However, the costs of remediating such a fault are thought to be relatively low, estimated between £1‐£2m, to up to £10m if the platform has been removed.31

The insurance industry has not yet taken a view on liability for leaked CO2. It is possible that insurance companies may not wish to take on this type of liability in some cases given the relatively unknown scale of damage from CO2 stored underground. If there is a demand on the insurance market to cover this risk, it would be advisable to learn from insurance brokers the appropriate value, exclusions and limitations that would be placed on contingent liabilities. It is likely that the risk will be assessed differently accordingly to the type of storage site. Such liabilities should be realistically priced to ensure the commercial players with the expertise necessary to deliver CCS infrastructure are not deterred from becoming storage operators. The Commission notes that it may be necessary for government‐backed insurance pools in the CCS demonstration phase but in the long term, coverage is developed that reflects the scale of the risk. 32

29 Intergovernmental Panel on Climate Change Working Group III (2005) “Special report on Carbon Dioxide Capture and Storage: Summary for Policymakers and Technical Summary”, Geneva: IPCC, p.31.

30 Societe Generale Cross Asset Research Report (10 March 2008) “Carbon Capture and Storage”.

31 Department for Business, Enterprise and Regulatory Reform (June 2008) “Towards Carbon Capture and Storage: A Consultation Document”, para. 4.50.

32 Commission (2008) Accompanying document to the Proposal for a Directive of the European Parliament and of the Council on the geological storage of carbon dioxide, Impact Assessment, 23.1.2008, para. 170. 21

2.9 Contingent Liabilities

In the event of leakage to the atmosphere or to the water column, contingent liabilities will be dealt with as follows:

i) strict liability on the operator under the Environmental Liability Directive where the leakage causes significant (local) environmental damage;

ii) financial liability to buy carbon credits under the EU ETS at the prevailing market rate, where

CO2 leaks into the atmosphere or sea (Article 19 of the draft Directive requires financial security to cover this liability); and

iii) liability in tort (negligence) where the leak causes property or health damage to a third party.

These liabilities are described in more detail below.

Strict liability under the Environmental Liability Directive

The Environmental Liability Directive (Directive 2004/35/EC) (ELD) establishes an overarching framework for environmental liability within the EU. It is based on the “polluter pays” principle, holding the polluter to account and requiring it to remediate the damage where possible. The ELD covers three categories of environmental damage:

i) damage that has significant adverse effects on biodiversity, whether protected at EU or national levels;

ii) damage that significantly adversely affects waters covered by the Water Framework Directive (Directive 2000/60/EC); and

iii) land contamination that creates a significant risk of human health being adversely affected.

The Directive was due to be transposed into Member States’ national law by 30 April 2007.33

Article 33 of the draft Directive amends the ELD to include environmental damage or the imminent threat of damage caused by the “operation of storage sites...”. This wording fails to make it clear that the operation of a storage site is only part of the CCS chain. The ELD should also apply to environmental damage caused by transport of CO2 and any activity pertaining to storage, including sealing and decommissioning the site.

33 Italy, Lithuania and Latvia were the only Member States to have transposed the Environmental Liability Directive into national law by this date.

The draft Directive covers harm to human health and the environment, but Recital 4 of the ELD only includes environmental damage caused by airborne elements as far as they cause damage to water, land or protected species or natural habitats. Therefore the ELD would not cover instances where atmospheric releases of CO2 affect only human health, in the absence of environmental damage. The regime anticipates that any such claims will be brought in tort rather than under the ELD.

Another implication of applying the ELD to CO2 storage is that the ELD does not impose liability if more than 30 years have passed since the emission, event or incident resulting in the damage occurred. Given the long timeframes for CO2 storage liability to occur, a 30 year longstop date may prove to be inadequate.34 It is also unlikely that liability under the ELD would apply to offshore storage sites. One possible solution to address the limitations of the ELD is to require that corrective measures should specifically include measures to remedy or mitigate damage to the environment and human health. This would be a wider obligation than that under ELD to simply prevent and remediate damage to the local environment, and also cover cases where damage is caused offshore. However, underlying liability for local environmental damage would still remain under the ELD, which could have effective application in certain cases, for example, damage to protected sites under EU nature conservation legislation. Crucially, the corrective measures plan should ensure that remediation is an obligation under the permit, rather than an external liability which falls under an inadequate regime. As with all European Directives, there will be differences in the way the ELD is implemented across Member States. This issue is discussed in further detail in the implementation section below (Section 5). The draft Directive is silent on the issue of transboundary migration of CO2, where leakage in one Member State causes damage in another. Further clarification is needed as to which jurisdiction’s liability regime should apply and how Member States should approach this issue.

The draft Directive’s use of the term “significant” to determine liability mirrors the risk‐based approach found in the ELD, described above. Article 4(2) of the proposed Directive requires that “no significant environment or health impacts are likely to occur” in relation to selection of storage sites, repeated again Article 13(1)(d) in relation to monitoring of the storage complex. The use of the word “significant” in relation to harm to the environment or health is important in terms of triggering liability. The interpretation of the term must be sufficiently robust in order to instil public confidence in the long‐ term storage of CO2 and remove uncertainties about legal responsibility in the event of a leakage causing harm. It is accepted that the use of the term “significant” is consistent with other risk‐based environmental regimes and that examples in case law are likely to assist with interpretation. However, the term usually requires a high threshold and Member States are advised to publish statutory guidance describing the type and description of harm that would be covered, and how significant impacts would be measured.

34 For a full discussion on liability for CCS under the ELD, see Fogelman, V. (June 2008) “Current European Issues in CCS Regulation” UCL Carbon Capture Legal Programme.

In summary, the scope of the ELD is limited and does not provide a comprehensive framework to cover damage caused by CO2 leakage.

Financial liability under EU ETS for global climate damage

Damage to the climate system (either the atmosphere or sea) caused by the escape of CO2 from storage sites will result in a liability to purchase credits under the EU ETS at market rate. In the Commission’s Impact Assessment, it stated “Liability for damage to the global environment is automatically covered by inclusion of the storage site within the EU ETS, requiring surrender of allowances for any leaked emissions from the site.” 35

This approach raises some interesting difficulties because it is using the emissions trading scheme, which deals primarily with emissions from industrial installations, for unintended leakages of CO2 from a geological storage site. First, it may be difficult to quantify the liability with accuracy where data cannot show the precise volume of CO2 leaked. No mechanism is established for calculating the extent of the liability in tonnes of carbon (e.g. default rules for calculating the number of tonnes of CO2 deemed to have been emitted).

Second, the requirement to buy credits is not a penalty in itself; it simply puts the operator back into the EU ETS with liability for climate damage limited to the current carbon price. This creates an unusual situation whereby if the carbon price is relatively low compared to the costs of monitoring and preventing leakages, the penalty may be an inadequate deterrent.

The EU ETS is not necessarily a comprehensive solution for imposing liability for climate damage as a result of leakage.

Liability in tort (negligence)

There may also be liability in common law where leaked CO2 causes personal injury, damage to private property or water rights, or economic loss. Examples include harm to employees or public health as a result of CO2 leakage, reduction in property values in the vicinity of a leaking storage site or business interruption from neighbouring properties where remediation is required.

Liability may arise in public nuisance, or more likely in negligence. Negligence would arise where the operator failed to exercise reasonable care in managing the storage site which resulted in damage from

CO2 leakage. A successful claim would need to show causation, i.e. that the CO2 caused the harm in question. This could be difficult to establish in practice. The IEA has noted that there have been no

35 Commission (2008) Accompanying document to the Proposal for a Directive of the European Parliament and of the Council on the geological storage of carbon dioxide, Impact Assessment, 23.1.2008, para. 149.

examples of liability in tort related to CO2 injection for EOR, but precedents may exist from legal cases in acid gas injection and natural gas storage.36

Conclusions on liability

The liability regime, as described above, is not sufficient to address the potential scale of contingent liabilities from CCS activities. To summarise, the ELD will only apply in narrow circumstances; the EU ETS does not establish adequate penalties to act as a deterrent; and causation in negligence will be difficult to prove. It is therefore recommended that the permitting regime addresses remediation/mitigation through the corrective measures plan and the EU ETS is supplemented by a robust system of penalties for leakage as discussed at Section 2.8. This approach would ensure that liability under the ELD and tort law is a backstop to a clear and comprehensive permitting regime contained within the scope of the Directive.

36 International Energy Agency (2007) “Legal Aspects of Storing CO2, Update and Recommendations”, IEA: 2007, p.41.

Section 3. Transport

The draft Directive relies on existing legislation to cover the transport of CO2 to storage sites and therefore makes few provisions in relation to this stage of the CCS process. However, gaps in the existing framework mean that transport issues for CCS are not fully addressed, particularly for transportation of

CO2 across national boundaries. The EU may therefore have a role in promoting strategic transport infrastructure and resolving transboundary issues.

For most Member States, pipelines are likely to provide the lowest cost of transportation of large volumes of CO2, rather than ship, rail or road. Construction of both onshore and offshore transport infrastructure will be left to national property and planning legislation and will require an environmental impact assessment under Directive 85/337/EC as amended by Council Directive 97/11/EC (EIA

Directive). A licence will also be required under the relevant legislation to transport the CO2 and additional health and safety regulations may apply if liquid CO2 is deemed to be a hazardous substance.

3.1 Access to networks (Articles 20 & 21)

Insofar as the draft Directive addresses transport, Member States are required to ensure that users are able to gain access to CO2 transport networks (as well as for storages sites), and sets out objectives that apply to fair and open access in Article 20. Past European experience with natural gas transport has shown that owners of transport infrastructure have been reluctant to allow third party access to the networks without adequate compensation.37 This has led to regulations dedicated to providing open and non‐discriminatory access to pipeline networks.

Article 20 of the draft Directive allows users to have certainty of access on fair terms by regulating the networks as a natural monopoly. It is important that access is provided by Member States in a fair and non‐discriminatory manner, so that every user is subject to the same conditions. Under Article 20(3), the only reason why access can be denied by a transport network or storage operator is lack of capacity. However, Member States are required to make the necessary improvements to increase capacity if a customer is willing to pay for it (Article 20(4)). Disputes relating to access are to be settled through arrangements established by Member States, under Article 21. In the event of a cross border dispute, the Directive provides that the jurisdiction of the Member State which has refused access to the transport network or storage site will apply.

37 Acceptance of CO2 Capture, Storage Economics, Policy and Technology Report (Accept)( 21 December 2007) “Summary of the Main Findings and Key Recommendations”.

3.2 Physical transportation of CO2

Pipeline

Most CO2 storage schemes are likely to involve conveyance by pipeline; either through the modification of existing pipeline infrastructure or the construction of major new pipeline systems. Although transport of CO2 by pipeline is not new technology and has been implemented in the USA for over 30 years, there is little experience in the EU of transporting liquid CO2 for long distances offshore.

CO2 can contain significant amounts of impurities from the capture process. Proposals to allow the injection of incidental substances are addressed in Article 12 of the draft Directive and require concentrations of such substances to be below levels which would affect the integrity of a storage site and associated transport infrastructure. Further research is needed to determine the hazards of conveyancing bulk quantities of dense phase or supercritical CO2 in pipelines in order to determine whether the CO2 is a hazardous substance. In this case, further regulation will apply, including the requirements of national legislation, implementing the Seveso II Directive.38

The Health and Safety Executive (HSE) in the UK is researching whether certain physical states of CO2, together with the quantities involved, merit classification as 'dangerous fluids’ for the purpose of the UK Pipelines Safety Regulations 1996 and/or 'dangerous substances’ for the purpose of the Control of Major Accident Hazards Regulations 1999 (as amended).39 The HSE notes that because there are currently no suitable standards or regulations for transporting CO2 as a liquid (apart from EOR projects), it has been 40 suggested that industry should treat pipelines for dense CO2 as though they are conveying natural gas. However, as the hazards are different, “designers and developers of CCS and sequestration projects need to keep in mind that whereas natural gas is a flammable, potentially explosive substance, CO2 is both toxic and an asxphyxiant”.41

For the purposes of the UK CCS Demonstration Competition, project developers are required to give a health and safety compliance demonstration as if CO2 were classified as a 'dangerous substance’ or a 'dangerous fluid’. In addition, the successful competitor must provide technical information to the HSE throughout the project, which will inform the development of appropriate health and safety standards. It will be important that similar CCS demonstrations across Europe comply with applicable national

38 Council Directive 96/82/EC of 9 December 1996 on the control of major‐accident hazards involving dangerous substances (as amended) is a European Union law aimed at improving the safety of sites containing large quantities of dangerous substances. It is also known as the Seveso II Directive, after the Seveso disaster.

39 The Control of Major Accident Hazards Regulations 1999 (COMAH) implements the Seveso II Directive in the UK.

40 Pipeline transport of CO2 already operates on commercial basis in the US, with over 2500km of pipelines carrying

CO2 mainly for enhanced oil recovery in western Texas and elsewhere.

41 HSE website, http://www.hse.gov.uk/pipelines/co2conveying.htm

health and safety legislation, and that information about transportation of CO2 from the demonstration projects is made publicly available.

According to the Commission’s Impact Assessment, “there are no records of serious injuries or fatalities associated with incidents involving CO2 pipelines from records dating back to the mid‐1970s.The principal causes of incidents involving CO2 pipelines, based on US experience, have been outside intervention and 42 corrosion”. Further research is required on the risks of pipeline corrosion from transporting ‘wet’ CO2 and issues related to safety, the environment, reliability, maintainability and monitoring of the pipelines, particularly where pipelines pass through densely populated areas. Det Norske Veritas has initiated Joint

Industrial Project on pipeline transmission of CO2 to develop best practice guidelines and a new standard for the transmission of CO2 in onshore and submarine pipelines. The project partners are StatoilHydro, BP, Shell, Petrobras, Vattenfall, Dong Energy, ArcelorMittal, Gassnova, Gassco and ILF. The Technical Reference Group consists of government representatives from the UK, the Netherlands and Norway. The Commission is also supporting the initiative. The guideline is intended to help designers and operators limit and manage uncertainties related to the pipeline transmission of CO2 by using current knowledge related to both offshore and onshore operations. It will state rules for managing risks throughout the pipeline's lifetime, including the design, testing, inspection, operation, maintenance and de‐commissioning phases.43

Shipping

Shipping is an alternative method of transporting CO2 that may be used within and beyond the EU. A release of CO2 from a ship during transport would impact on the surrounding ocean, potentially causing damage to marine life. The closest analogy to ship transport of CO2 is the transport of liquefied natural gas (LNG) or liquefied petroleum gas (LPG). The Commission’s Impact Assessment states: “Transportation of liquefied gases by sea has a very good safety record. Despite the number of cargoes 44 carried, LNG carriers have not suffered any significant losses”. Since potential hazards posed by CO2 transport by ship are broadly comparable to those of LNG and LPG transport, the existing regulatory framework would apply to the regulation of CO2 transportation by ship.

The EU Directive on Maritime Safety (95/21/EC) requires Member States to put in place controls to rectify deficiencies on various types of marine vessel (including gas and chemical tankers) over 500 tonnes. For the most part EU shipping law (e.g. Council Directive 93/75/EEC) enforces obligations under the International Convention for the Prevention of Marine Pollution from Ships (MARPOL) and the

42 Commission (2008) Accompanying document to the Proposal for a Directive of the European Parliament and of the Council on the geological storage of carbon dioxide, Impact Assessment, 23.1.2008, para. 76.

43 Det Norske Veritas website, http://www.dnv.no/energy/nyheter/standards_co2_capture.asp

44 Commission (2008) Accompanying document to the Proposal for a Directive of the European Parliament and of the Council on the geological storage of carbon dioxide, Impact Assessment, 23.1.2008, para. 84.

International Maritime Dangerous Goods Code. Other elements to enhance the protection of the environment and maintain safety in marine shipping include the Committee on Safe Seas and the Prevention of Marine Pollution.

International transport codes and agreements applying to CO2 adhere to the UN Recommendations on the Transport of Dangerous Goods: Model Regulations published by the United Nations in 2001.

Transportation of CO2 by ship is also governed by various international legal conventions. Further measures may be required at the local level to handle CO2 cargoes and new standards may be introduced to specifically cover the transportation of CO2.

3.3 Transport issues in Member States

Pipeline transport is likely to be the preferred method of transport in most parts of the EU, and depending on the location, greater use of CCS could lead to significant pipeline networks across the country. Integrated transport infrastructure will require planning at EU, national and local level. It will be important for the planning regime in Member States to respond efficiently to planning applications for new or upgraded pipelines, although this will vary greatly across the EU.

If local storage is available, it is likely that power plants and other industrial facilities such as steel mills, cement plants and chemical plants fitted with CCS will develop in regional hubs, clustered around points so as to have easy access to transport networks and storage locations. However, not all facilities will benefit from proximity to storage sites. This may result in the need for a “pan‐European transport network”, connecting regional capture clusters with large international storage locations, such as 45 offshore deep saline aquifers in the North Sea. The cost of building miles of pipelines to transport CO2 offshore may be high and may present a barrier to such plants adopting CCS in the future.46 The adoption of CCS at these locations will therefore depend upon a number of factors including regulation, the carbon price, and ultimate CCS costs.47

3.4 European and international transboundary issues

Transport of CO2 will extend beyond the boundaries of one Member State where the CO2 is delivered to a storage site located in another Member State, or even outside the EU. This raises a number of legal issues.

45 McKinsey & Company (2008) “Carbon Capture & Storage: Assessing the Economics”.

46 ibid. According to the McKinsey report, the cost of offshore storage could double transport and storage costs to about €18 per tonne CO2, versus about €9 per tonne CO2 for onshore storage in 2030.

47 JP Morgan Chase (2007) “Carbon capture and sequestration, A report for the London Accord.

The Basel Convention on the Control of Transboundary Movement of Hazardous Waste 1989 is an international treaty that was designed to reduce the movements of hazardous waste between nations. The Convention has 170 State Parties and aims to protect human health and the environment against the adverse effects resulting from the generation, management, transboundary movements and disposal of hazardous and other wastes. The Basel Convention came into force in 1992. As the draft

Directive removes CO2 captured and transported for the purposes of geological storage from the definition of waste and EC waste regulation, it is unlikely that the Basel Convention would apply to transboundary transport and storage of CO2 within the EU. However, if CO2 is mixed with other substances, it may be considered hazardous, requiring the Basel Convention to clarify its position.48

Insofar as the draft Directive regulates transport, the construction of pipelines across national borders will require an environmental impact assessment under the EIA Directive. Environmental assessment is a procedure that ensures that projects which are likely to have significant effects on the environment are assessed before the project is granted consent. This includes an assessment of whether a project has effects on the environment in another Member State. The developer must undertake an analysis of the likely effects on the environment and publish the results of the analysis in a report. An EIA will also involve a public consultation on the report, and take into account the consultation responses when making the final decision.

Article 29(1) of the draft Directive amends paragraph (16) of Annex I of the EIA Directive to require pipelines with a diameter of more than 800 mm and a length of more than 40 km for the transport of

CO2 to a storage site, to consider whether the project is likely to have significant transboundary effects. Article 7(1) of the EIA Directive states:

“Where a Member State is aware that a project is likely to have significant effects on the environment in another Member State or where a Member State likely to be significantly affected so requests, the Member State in whose territory the project is intended to be carried out shall send to the affected Member State as soon as possible and no later than when informing its own public, inter alia:

(a) a description of the project, together with any available information on its possible transboundary impact;

(b) information on the nature of the decision which may be taken,

and shall give the other Member State a reasonable time in which to indicate whether it wishes to participate in the Environmental Impact Assessment procedure, and may include the information referred to in paragraph 2”.

48 International Energy Agency (2007) “Legal Aspects of Storing CO2, Update and Recommendations”, IEA: 2007, p.99.

Various MEPs on the Committee on the Environment, Public Health and Food Safety have suggested that for transboundary storage sites, the national authority responsible for granting permits will be the Member State on whose territory the forseeably largest part of the storage site is located.49 In the case of a planning consent for a transboundary pipeline, it is likely that a developer would need to comply with two separate planning regimes although in practice the developer would prepare one environmental statement in support of its planning applications.

Transboundary issues also raise legal challenges regarding title, access and liability. It may be that these types of issues are resolved by contract.50 Furthermore, as noted by BERR, the London Protocol which was amended in 2006 to permit the sub‐seabed disposal of carbon dioxide, still prohibits the cross‐ border export of carbon dioxide for disposal into a sub‐seabed formation, and therefore requires further amendment.51

Regulation of the consenting process for transport infrastructure remains limited at the European level, given that Member States will rely on national planning, property and compulsory purchase (if applicable) legislation. However, the existing framework within Member States, together with the requirements in the EIA Directive, may ultimately prove to be inadequate due to the necessary transport infrastructure required to support the scale of future CCS projects.52

Article 23 of the draft Directive requires Member States to cooperate in cases of transboundary transport or storage of CO2. This could partly be addressed by the demonstration projects. In the absence of a coherent framework for transport infrastructure, the EU has a role in ensuring cooperation across Member States, leading the development of transboundary pipelines and ensuring that legal barriers can be removed where necessary.

49 European Parliament Committee on the Environment, Public Health and Food Safety, Amendment 391 Part III, 24.7.08.

50 Herbert Smith (November 2007) “CCS and Clean Coal: Legal Barriers to Development”, Investment in low‐carbon technology‐ the legal issues, published for The London Accord, p.23.

51 Department for Business, Enterprise and Regulatory Reform (June 2008) “Towards Carbon Capture and Storage: A Consultation Document” para. 5.4.

52 Acceptance of CO2 Capture, Storage Economics, Policy and Technology Report (Accept)( 21 December 2007) “Summary of the Main Findings and Key Recommendations”.

Section 4. Capture

As noted above, the Directive does not focus specifically on capture of CO2 at its industrial source, instead taking the approach that capture will be dealt with under existing legal regimes, notably the integrated pollution prevention and control (IPPC) regime.53 Moreover, parallel revisions to the EU ETS will bring capture of CO2 within the emissions trading scheme. However, the Directive contains one important provision in Article 32, which requires Member States to assess whether proposed new fossil fuel power stations are “capture ready”. These issues are discussed below.

4.1 Relationship with EU ETS

The Commission’s intention is that operators will be incentivised to capture CO2 through the EU ETS. Currently the EU ETS does not distinguish between power stations with CCS technology and those without, so an allowance is required for each tonne of CO2 produced, whether or not it is stored underground. The interim solution to this potential problem is for a Member State to apply under Article 24 of the existing EU ETS Directive for the Commission’s approval to include CCS as an additional activity.

In future, however, all aspects of CCS will be explicitly included in the EU ETS under the Commission’s 54 proposals for revising the EU ETS Directive. The effect will be that CO2 created by combustion at any plant fitted with CCS will be treated as “not emitted” under the EU ETS, and the generator will not be required to surrender allowances for the stored CO2. Since the CCS process does not capture 100% of

CO2 emissions, allowances will still be required for the remaining CO2 which is emitted into the atmosphere, estimated to be in the region of 5‐15%.

4.2 IPPC Directive

The Integrated Pollution Prevention and Control Directive (Directive 96/61/EC) imposes a permitting regime on certain industrial activities, specified in Annex I, to control releases of contaminants into and pollution of the environment. Article 30 of the draft Directive amends the scope of the IPPC Directive to include activities which capture CO2 for the purposes of geological storage, requiring plant operators to obtain a permit for capture. The effect of this provision is that any new or existing operation proposing to capture CO2 would be required to obtain an additional operating permit under the IPPC regime. It is an offence to breach a permit condition and fines will be determined by implementing legislation in Member States.

53 Council Directive 96/61/EC of 24 September 1996 concerning integrated pollution prevention and control.

54 Commission (2008) “Proposal for a Directive amending Directive 2003/87/EC so as to improve and extend the greenhouse gas emission allowance trading system of the Community”, COM(2008) 16 final, Annex I.

4.3 Large combustion plants covered by the Directive

Article 32 amends the Large Combustion Plants Directive (Directive 2001/80/EC) (the LCPD) to include an obligation on all new build combustion plants with a capacity of 300 MW or more to have suitable space on the site for CCS equipment to be retrofitted, the “capture ready” definition. The LCPD currently applies to all combustion plants above 50MW. The Commission considers that the proposed 300MW threshold would catch the majority of new coal and gas plants, around 25% of new gas‐based CHP plant, and a minimal amount of new CHP only plant.55

CCS technology can also have application beyond fossil fuel power stations, and may also be effective in other industrial installations, such as cement manufacturing, chemicals, petroleum refineries, iron and steel, paper and other high energy industries. The draft Directive does not, however, require such plants to meet the capture ready requirements in Article 32. These plants will be in sectors covered by the EU

ETS and would obtain the benefit, as described above, for any CO2 captured and stored.

4.4 Definition of “capture ready”

Article 32 of the draft Directive amends the LCPD and provides that:

“Member States shall ensure that all combustion plants with a capacity of 300 megawatts or more for which the original construction licence or, in the absence of such a procedure, the original operating licence is granted after the entry into force of Directive xx/xx/EC of the European Parliament and the European Council, have suitable space on the installation site for

the equipment necessary to capture and compress CO2 and that the availability of suitable

storage sites, suitable transport facilities and the technical feasibility of retrofitting for CO2 capture have been assessed.”

In the impact assessment and consultation process for the draft Directive, the Commission concluded that at this time Member States should not be required by the EU to introduce either a mandatory requirement for CCS or impose a specific date for mandatory CCS.56

As it stands, Article 32 will require Member States to ensure that new combustion plants will be constructed such that they are capable of being retrofitted with CCS technology. The provision is open as to whether the plant will ever be fitted with capture technology or when retrofit might occur.

55 Department for Business, Enterprise and Regulatory Reform (June 2008) “Towards Carbon Capture and Storage: A Consultation Document”, para. 3.29.

56 Commission (2008) “Accompanying document to the Proposal for a Directive of the European Parliament and of the Council on the geological storage of carbon dioxide, Impact Assessment”, 23.1.2008.

The Commission’s concept of capture readiness is modelled on a technical report of the International Energy Agency.57 The definition focuses on the technical aspects of power plant construction, and in particular the technical challenges involved in retrofitting technology on the plant to capture CO2 emissions. This aspect involves consideration of whether the plant will be constructed so that there is sufficient physical space available for additional capture facilities to be installed at a future date.

In addition, the operator seeking planning permission for the proposed new plant will need to assess the availability storage sites and transport facilities. However, as geological storage and transport are likely to be carried out by operators other than the combustion plant operator, the expectation as to the level of detail for the storage and transport viability assessment is relatively low. In the UK, for example, the Government has indicated that a developer could meet the requirement to assess storage by referring to the assessment of offshore geological storage sites already carried out by the Government.58

The proposed definition of capture readiness does not cover the full range of factors that will affect the feasibility of retrofitting a power station with CCS, and which will determine whether CCS is in fact ever retrofitted, as well as the timing of retrofitting. In particular, Article 32 does not require any financial or economic assessment of retrofitting CCS for new combustion plants. Accordingly, a full assessment of the implications and potential costs of new fossil fuel investment will not be required. Article 32 is also silent as to a date by which retrofit will be required or state that operators will be liable for the cost of meeting both a carbon price and the cost of future retrofitting.

The concept of capture readiness as set out in Article 32 does not therefore reflect all the factors that will affect the feasibility of deploying CCS. In addition to technical factors, CCS will require the development of a full business chain and infrastructure for transportation and geological storage, and will involve a wide range of industrial sectors.59 Experts have suggested that CCS is a very complex notion, and that achieving the desired policy outcome in terms of future retrofitting will depend on a large number of complex factors not currently accounted for.60 A full feasibility assessment would include consideration of:61 • modifications to power plant, enabling easy conversion and operation with capture;

57 International Energy Agency (2007) “CO2 Capture Ready Plants Technical Study”, Report No. 2007/4.

58 Department for Business, Enterprise and Regulatory Reform (June 2008) “Towards Carbon Capture and Storage: A Consultation Document”, para 3.23.

59 E3G (2008) “Accelerating European Development and Deployment of Carbon Capture and Storage (CCS) Technology”.

60 Markusson, N. and Haszeldine, S. (2008) “How ready is ‘capture ready’? Preparing the UK power sector for carbon capture and storage”, Scottish Centre for Carbon Storage for WWF‐UK.

61 ibid.

• detailed planned methods and routes to transport CO2 from plant to storage site; • storage sites of sufficient volume and performance that are available when required; • skills development in CCS operation and coordination of the value chain; and • stringent regulatory criteria to enforce early conversion to full CCS.

The capture ready definition has been criticised on a number of grounds, and the alternatives include setting a date by which CCS retrofit will be required for existing power stations and at which it will be made mandatory for new power stations. However, carbon capture readiness which fixes a date for retrofit is likely to result in energy companies refusing to commit to any investment in a plant subject to such a requirement. In the UK, for example, the Government consultation on capture readiness states:62

“[It] would not be prudent at this point to require all new coal plants in the UK to fitted with CCS, or to set a date by which this would be required or expected.”

An alternative approach is regulation in the form of a carbon emissions performance standard. Setting the amount of carbon dioxide that may be emitted by a power station is an option which does not require CCS technology to be used, but requires energy companies to meet the standard with suitable power generation including renewable energy, efficient gas, or coal with CCS operating from the outset. The State of California introduced a greenhouse gas emissions performance standard (EPS) in January 2007. The California EPS means that new investment in baseload power generation serving California consumers must be with power plants that have emissions no greater than a combined cycle gas turbine 63 plant. The level of the standard is set at 1,100 pounds of CO2 per megawatt hour, equivalent to 500kg

CO2 per MWh. The California EPS is part of a regulatory system based on a loading order which starts with investment in energy conservation and efficiency, followed by renewables and distributed generation, and third, clean, efficient fossil fuel sources and infrastructure improvements.64

For coal power, the immediate effect of the standard is that any new coal power plant would have to present a reasonable, economically and technically feasible plan that CCS will operate from the outset to meet the California EPS.

A similar carbon EPS for electricity generation could be introduced at EU or individual Member State level. A carbon EPS would operate in combination with support for an EU priority demonstration programme of CCS, and would subsequently operate as a deployment mechanism in the CCS deployment phase complementing the carbon price created under the EU ETS.

62 Department for Business, Enterprise and Regulatory Reform (June 2008) “Towards Carbon Capture and Storage: A Consultation Document”, para. 1.18.

63 Public Utilities Commission of the State of California, Interim Opinion on Phase 1 Issues: Greenhouse Gases Emissions Performance Standard, January 2007, http://docs.cpuc.ca.gov/PUBLISHED/FINAL_DECISION/64072.htm.

64 California Energy Commission, “2007 Integrated Energy Policy Report”. http://www.energy.ca.gov/2007_energypolicy/index.html.

Section 5. Implementation and future issues

The draft Directive is simply a regulatory framework, establishing objectives and general requirements for CO2 storage. Much of the detail of implementation will be left to Member States. Once the Directive is published, it will specify a date by which Member States must transpose it into their national law (usually one year). The Commission is able to impose fines on Member States for late implementation of Directives.

Implementation across Member States will vary, depending on the political structures of individual countries, whether they have central or regional systems of government, and the nature of their planning and property law systems. In the case of transboundary storage, Member States will need to be aware of the local law in the country where the CO2 is to be stored. For example, although the draft Directive revises the definition of waste, the use of similar definitions in international treaties means that a developer transporting CO2 outside the EU needs to be aware of its implications. It will be particularly important to review local legislation before embarking on any project which stores CO2 outside the EU.

UK Case Study: Creating a regulatory framework for CCS

Whilst each Member State will have its unique way of transposing the Directive into national law, it is helpful to consider some of the more general challenges of implementation, taking the UK as a case study. The UK has already taken steps to adopt a regulatory framework to enable offshore geological storage of CO2.

The UK Government’s domestic and international energy strategy is set out in the 2007 Energy White Paper and aims to help deliver the UK’s climate change target65 and maintain reliable energy supplies within liberalised energy markets. The Energy Bill (UK) introduced in the House of Commons on 10 January 2008 will implement the legislative aspects of the Energy White Paper. The Bill is currently passing through the House of Lords and is expected to receive royal assent this autumn. Part 1 of the Energy Bill seeks to create a regulatory framework to enable private sector investment in CCS. Chapter 3 of Part 1 relates to the storage of CO2 and sets up a national licensing regime. It is likely that the detailed requirements will be contained in regulations pursuant to the primary legislation.

In June 2008, the Department for Business, Enterprise and Regulatory Reform (BERR) launched a consultation document entitled “Towards Carbon Capture and Storage”. The consultation seeks views on how the UK Government should prepare for the deployment of CCS and will inform discussions with other EU Member States on the draft EC Directive on the geological storage of carbon dioxide published

65 The UK Climate Change Bill has a target of reducing carbon dioxide emissions by at least 60% by 2050 compared to 1990 levels.

by the Commission in January 2008. The consultation closed on 22 September 2008 and expects to report in December.

In November 2007, the UK Government invited bids for one power plant to demonstrate post combustion CO2 capture from coal fired power generation. This would initially be at a scale of 50‐ 100MW by 2014 and then 300‐400 MW “as soon as possible thereafter”. The competition closed in March 2008, and the Government received nine statements of interest. It is expected a contract will be awarded to the successful bidder in autumn 2009. The plant will demonstrate the full chain of CCS and will provide important findings from the practical operation of an integrated CCS system. The approach to the competition has been criticised as overly restrictive as it only considers one small plant demonstrating solely the post combustion option.66

The UK is in the advantageous position of having natural areas for CO2 available offshore in the North and Irish Sea, which can be used for either EOR or storage. Under Part 1, Chapter 1 of the Energy Bill, the UK claims rights under Article 56(1) of UNCLOS in respect of the exploration and exploitation of the seabed for the purpose of gas importation and storage. Ownership of rights over natural resources within 200 nautical miles will be vested in the Crown Estate, who will grant the necessary lease to allow developers to use the geological space for CO2 storage.

Both the Energy Bill and the draft Directive follow the same basic approach, requiring a licence, or in the case of the draft Directive, a permit to be issued for the exploration of a CO2 storage site and for the storage of CO2. Where leakage occurs, there will be an infringement of the licence/ permit. In the UK, this would also be an infringement of the proprietary rights of the Crown Estate.67 Enforcement proceedings for unlicensed activities or breach of a licence are laid out in the Energy Bill, including a fine not exceeding £50,000 on summary conviction or a period of imprisonment not exceeding two years and/or fine on indictment. Under the draft Directive, it will be for individual Member States to determine the appropriate penalties for such offences. The lack of a harmonised penalty system is likely to result in a high degree of variation in sentences and fines across the EU and may affect an operator’s decision as to where to locate their storage site.

The BERR consultation identifies two models of financial guarantee required from the licensee to ensure that obligations under the permit are satisfied. Letters of credit are discretionary and are used where the regulator assesses that the licensee’s assets are not sufficient to cover the likely scale of the liabilities. Alternatively operators could contribute to an independent fund to cover their obligations, similar to the fund being set up for nuclear decommissioning. Different options for financial security will vary across Member States, and it will be important for national legislation to specify the types of guarantee that will be acceptable. Financial arrangements should also include a provision for contingent

66 Haszeldine, S. (2008) “Six Thousand Feet Under, Burying the Carbon Problem”, Policy Exchange.

67Department for Business, Enterprise and Regulatory Reform (June 2008) “Towards Carbon Capture and Storage: A Consultation Document”, para. 4.19.

liabilities. Although the draft Directive specifies that liability under the EU ETS should be covered by financial security, other types of liability under the ELD and in tort should also be covered. Again individual Member States will need to assess whether the insurance market will cover these types of liabilities, or what other alternatives are available. Chapter 3, Clause 19(2)(e) of the Energy Bill departs from the Commission’s wording, and requires a financial guarantee as a condition of the licence being granted, rather than as in the Directive’s case, a condition of making an application.

The liability regime under the ELD will also operate differently across Member States, as the Directive gives a great deal of latitude to Member States over how they implement its provisions. The ELD allows an opportunity for national governments to exceed its requirements by implementing a strict liability regime. However, at the other end of the scale, implementation could result in very weak laws regarding prevention and remediation if a Member State chose to include only the ELD’s minimum requirements. The UK has missed the ELD’s implementation deadline and aims to transpose it by December 2008. A criticism of the UK is that it takes a minimalist approach to implementation. The dramatic variation of a

European environmental liability regime between countries may influence CO2 storage operators to operate sites in Member States with weaker liability rules. However, this is a potential limitation of the ELD rather than the draft Directive. The EU may need to consider future action based on best practice for CCS as it develops to ensure consistency and a level playing field.

5.1 Property issues to be resolved at the national level

The main issue to be addressed at national level alongside implementation of the Directive is a developer’s property rights over storage sites. In common law jurisdictions, ownership of land includes both the surface and sub‐surface. Where a landowner owns land required for a storage project, a developer would have to purchase rights to the surface and sub‐surface land from the landowner. This may be achieved by compulsory purchase, although given the delay and complexity in exercising such powers, it may be more practical to resolve these issues through a contract with the landowner. In other jurisdictions where the subsurface is vested in the government, the developer would need to obtain access rights. In the case of offshore storage, ownership of the seabed will usually vest with the state within a 12 mile limit, and a further 188 miles if UNCLOS is asserted. The differences in ownership of sub‐surface rights across Member States may result in different systems of regulating CO2 storage.

Where the sub‐surface is owned by a landowner, a number of property rights will apply in relation to

CO2 storage: property in the CO2, property in the storage site, property in the plant and equipment required for injection and property in the land surrounding the storage site.68 These issues will need to be resolved at national level, but it will be important that a developer has certainty about ownership as

68 International Energy Agency (2007) “Legal Aspects of Storing CO2, Update and Recommendations”, IEA: 2007, p.31.

it impacts issues such as liability and responsibility for monitoring. Again, the contract between the landowner and developer may resolve a number of these issues.

5.2 General measures

Monitoring transposition and enforcement

The Commission’s role in monitoring transposition of the Directive into national law will ensure that Member States who fail to implement the legislation in the specified time period are exposed. This may result in the Commission imposing fines on the Member State for late implementation. The Commission must also ensure compliance and enforcement of the legislation as the overall impact of the regime in practice, will turn on the effectiveness of enforcement.69

Cooperation and public participation

The Commission is well placed to facilitate cooperation between Member States in order to ensure that implementation is consistent and lessons learnt can be transferred across the EU. Article 25(3) requires the Commission to organise an exchange of information between Member States regarding application of the Directive.

An example of a cooperation initiative is a new project called ECCO ‐ European value Chain for CO2 announced in September 2008, with the objective of establishing recommendations for how to deploy a

“European CO2 value chain”. The project is scheduled to run for three years, with a budget €5.4 million, of which €3.9 million is to be funded by the Commission under the seventh framework programme for research and development. The project is coordinated by SINTEF, a Norwegian research institute and aims to identify strategies for early deployment of CCS. The project will analyse the potential of CO2 for enhanced oil and gas recovery which could be the first phase of establishing the necessary infrastructure 70 for wide deployment of CCS, linking all large CO2 point sources to suitable storage locations. Further examples of cooperation initiated at Commission level are to be welcomed.

The Commission and Member States also need to ensure that public participation is provided for in relation to CCS. The Aarhus Convention guarantees Europe’s citizens the right to information, the right

69 The Commission is notoriously weak on enforcement of environmental Directives, as it does not have any structures to monitor the application of environmental legal provisions. (For further discussion, see L. Krämer, 6th edn, London 2007, EC Environmental Law.) In October 2008, the European Parliament's Environment Committee gave strong backing to a draft non‐legislative resolution calling for an EU environmental inspection force with the power to hold Member States accountable over their implementation of environmental laws. The draft resolution will be voted on by the Parliament in November.

70 For further information on the ECCO project, see http://www.bellona.org/articles/articles_2008/ECCO_project.

to participate in environmental decision‐making processes and the right to go to court to secure environmental justice.71 Such participation is important not only to meet legal obligations, but also to build public understanding and confidence in a new technology and infrastructure, for example, by providing access to monitoring and inspection reports under the storage regime.

Best practice and amendments to site selection criteria and monitoring plan and post‐closure monitoring

The Commission will have the power under Article 27 of the Directive to amend the Annexes to the Directive. Annex 1 establishes criteria for characterisation and assessment of storage sites. Annex 2 sets out criteria for establishing and updating the monitoring plan and for post‐closure monitoring. This provision will ensure that the Directive will be able to respond to developments in best practice and learning from the demonstration of CCS. The process for amending the Directive is through the comitology process (Decision 1999/468/EC). The Commission will be assisted by the Climate Change Committee of the European Parliament.

5.3 Demonstration of CCS

The Commission has indicated support in principle for up to 12 demonstration projects in the EU, but has not proposed how these would be financed. 72Under the statement on state aid, Member States may choose to support demonstration of CCS technologies based on their environmental benefits.73 The UK Government is running a competition to develop the UK’s first full‐scale demonstration of carbon capture and storage by 2014.74 The competition is being run in accordance with EU competitive tender rules.

Apart from individual Member State‐level funding of CCS demonstration projects, proposals are also on the table for an EU‐led demonstration programme based on an EU ETS financing mechanism. An EU‐led demonstration programme would allow the coordinated commercial‐scale demonstration of the range of CCS technologies, demonstrate an integrated chain of CCS at commercial scale, and allow CCS to be tested in a range of geographical locations and installations (power stations, industry). An EU

71 The UNECE Convention on Access to Information, Public Participation in Decision‐making and Access to Justice in Environmental Matters (the Aarhus Convention) entered into force on 30 October 2001 and was ratified by the EC in May 2005.

72 Commission (2008) “Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions: Supporting early demonstration of sustainable power generation from fossil fuels”, COM(2008) 13 final.

73Community guidelines on State aid for environmental protection (2008/C 82/01).

74 http://www.berr.gov.uk/whatwedo/energy/sources/sustainable/ccs/ccs‐demo/page40961.html.

demonstration programme would be aimed at meeting the aspiration of at least 12 demonstration projects in the EU with a range of technologies and locations involved. According to recent studies, this kind of ambitious programme may be needed to advance CCS in order to allow possible widespread commercial deployment by 2030.75

If such a programme were to be brought forward, possibly in 2009, a number of legal and policy issues associated with the tender design, sharing of information and learning in terms of technology, best practice, and environmental risk and impact assessment would need to be considered. A key issue would be the basis upon which technology transfer would take place, including whether any conditions as to technology transfer may be imposed on developers receiving EU ETS‐based financing support for demonstration.

75 McKinsey & Company (2008) “Carbon Capture & Storage: Assessing the Economics”.

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