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With 45Q tax credits beginning to flow following passage of the Inflation Reduction Act of 2022, states continue to pass carbon sequestration legislation in the hopes of bolstering and luring industry engaged in carbon capture and sequestration (CCS) activities. While some states look to support pilot programs, other states are looking to build out a regulatory regime that gives certainty to CCS stakeholders exploring the possibility of investing in or executing on sequestration projects. A brief summary of new legislation and state agency actions can be found below.

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H.B. 23-1210: The Colorado legislature took initial steps to establish a regulatory scheme that would govern future sequestration projects in the state. H.B. 23-1210 requires the Colorado energy office and the office of economic development to contract with an organization for the development of a “carbon management roadmap” for the state. The legislation also defines “carbon management” as any combination of carbon dioxide removal, carbon storage, carbon capture, and carbon utilization and ensures that carbon management projects, except for agricultural, forestry, and enhanced oil recovery projects, are eligible for money under the state’s industrial and manufacturing operations clean air grant program.

Geologic Carbon Sequestration Leasing Policy: The state of Colorado’s Land Board adopted a&nbsp;Geologic Carbon Sequestration Leasing Policy. The policy authorizes the State Land Board to accept applications to lease State Land Board subsurface pore space for carbon sequestration and exploration projects, including through the development of Class VI injection wells. Under the policy, the maximum term for a lease is four years and the minimum charge for a lease is $12/acre. The policy further directs the State Land Board to reserve pore space ownership when disposing of state surface estates.

S.B. 0451: The Indiana legislature took steps to further build out regulations relating to its pilot sequestration project in Terre Haute. Those regulations included the following:

For purposes of the operation of the carbon sequestration pilot project, the title to the pore space is vested in the owner of the surface estate, except in cases of explicit conveyance.

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Before the anticipated migration of injected carbon dioxide into pore space, the pilot project operator is required to notify the person who owns the pore space of the anticipated migration of the carbon dioxide.

The carbon sequestration pilot project operator is required to make an offer of compensation to a pore space owner amounting to at least a yearly payment of 40% of the average estimated cash rent per acre.

A mediation and dispute resolution process is established for disputes between owners of pore space and the pilot project operator.

Generally, in a civil action against the pilot project operator, the court may not grant injunctive relief, an order of possession, or monetary relief that exceeds the fair market value of pore space at issue.&nbsp;

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H.B. 571: The Louisiana legislature made a number of substantive changes to its carbon sequestration regulatory regime through the passage of H.B. 571, including the following:

Requires the submission of an environmental analysis in connection with an application for a Class VI permit, which is required to address environmental effects of proposed permit activity, cost-benefit analysis, alternative sites considered, and mitigating measures.

Establishes new reporting and recordkeeping requirements for owners/operators of permitted Class VI wells.

Requires the storage operator to provide notice to the Commissioner of Conservation within 24 hours of any noncompliance, malfunction, or failure relating to CCS operations.

Changes the minimum amount of time before the State of Louisiana will assume liability for a carbon storage facility from 10 years after last injection to 50 years after last injection.

Establishes the fees and costs the commission of conservation is entitled to levy.

Establishes how revenues collected by the State of Louisiana in connection with storage of carbon dioxide will be distributed.

Increases the amount that a storage operator must contribute to the Carbon Dioxide Geologic Storage Trust Fund from $5 million per operator to $5 million per facility, with a $10 million per operator cap.

Provides requirements and processes for recording a geologic storage agreement, as well as the effects of recordation.

S.R. 179: The Louisiana legislature also established the Task Force on Local Impacts of Carbon Capture and Sequestration to study and propose recommendations regarding the impact of carbon capture and sequestration projects across the state.

S.R. 123 and H.R. 229: Lastly, the Louisiana Senate and House both passed resolutions requesting that the United States Environmental Protection Agency “timely review and grant the state of Louisiana’s application for primacy in the administration of Class VI injection well permitting and to express support in furtherance thereof to maintain and extend Louisiana’s global leadership in transformative energy innovation.”

S.B. 200: The Oklahoma Legislature passed legislation requiring the Corporation Commission and Department of Environmental Quality to “evaluate the regulatory and statutory framework that governs the agency and identify and report any areas in which modifications may be needed to the Secretary of Energy and Environment to provide for the development of underground injection control Class VI wells.”

S.B.162: The West Virginia Legislature passed legislation authorizing the director of the Division of Natural Resources to lease pore spaces underlying state forests, natural and scenic areas, wildlife management areas, and other lands under the jurisdiction and control of the director for underground carbon sequestration.

To learn more about policies and regulations pertaining to carbon sequestration projects, you can review the <a href="https://admin.bakerlaw.com/wp-content/uploads/2023/06/Carbon-Capture-Regulatory-handbook-CCUS.pdf" target="_blank" rel="noreferrer noopener">CCUS Regulatory Handbook</a> and/or contact the author.

States Continue to Build Out Carbon Sequestration Regulatory Structure in First Half of 2023