CO2 LEAKS NOT EXPECTED TO BE FINANCIAL DEALBREAKERS FOR CCS PROJECTS, STUDY FINDS

Tamar Hallerman
GHG Monitor
06/22/12

The cost of managing liabilities from an accidental CO2 leak at a large-scale carbon capture and sequestration project is not expected to be financially substantial enough to be a dealbreaker for projects, a new report released by the Global CCS Institute this week argues. Long-term liability remains one of the largest barriers to CCS deployment, and uncertainties surrounding the long-term storage of CO2 have caused some investors to shy away from backing new projects. But the assessment—paid for by a coalition of industry, government and non-profit stakeholders and carried out by the consulting firm Industrial Economics, Inc.—states that in the unlikely event of a leak, the cost of paying for public health and environmental liabilities is expected to less than 1 percent of total project costs, with most of the price tag going towards purchasing offsets for any CO2 released into the atmosphere. “This landmark study shows that costs of managing liabilities from an accidental release of CO₂ are unlikely to impede development of a CCS project,” Institute CEO Brad Page said in a statement.

The study also concludes that a CO2 leak will not likely have a strong impact on public health or the environment given that project managers will probably be able to zero in and root out any problems relatively quickly during the project monitoring phase. “Results from this study suggest that a well-sited and appropriately managed CCS project would have relatively small potential for impact on the surrounding environment, in part, because risks of leaks are small and able to be detected in a reasonable timeframe should they occur,” according to an Institute release.

Texas Site Used in Modeling

The report developed a computational model for valuing the economic damages—both environmental and human health-related—that will likely be owed in the event of an unplanned CO2 leak from a CCS project. Those damages include any harms to groundwater or air quality, as well as any permanent or temporary medical or productivity issues.Researchers then tested the model against a ‘realistic’ CCS project, in this case the east Texas site that was a finalist candidate for FutureGen 1.0. That project would have used pre-combustion integrated gasification combined cycle technology to capture and store 50 million metric tons of CO2—as well as a small percentage of hydrogen sulfide (H2S)—into the subsurface over a 50-year period, with an equally long post-injection monitoring period. Researchers tested potential leakage scenarios stemming from the failures of equipment at the site across the project value chain—from the separation equipment to the pipeline, as well as in the subsurface. Researchers then examined the health and ecological damages stemming from that release into the atmosphere or subsurface, and using valuation methods from legal systems for accident compensation and natural resource damage assessments, looked at how much that compensation would cost project operators.

Projected Damages

Using that model, the study concludes that a CO2 leak would lead to $7.3 million in damages over the 100-year project lifetime on average (or roughly $0.15 per ton of total CO2 stored), with a high-end estimate of $16.9 million ($0.34 per ton). If H2S is present in the CO2 stream—as it would have been at the Texas site—that damage is estimated to be $8.5 million ($0.17 per ton) on average and $18.6 million on the high end ($0.37 per ton). Ultimately, the study concludes that those costs are not nearly substantial enough to stunt projects. “Using a publicly available risk assessment for a finalist FutureGen site as a ‘realistic’ base case, the magnitude of likely economic damages over a 100-year assessment period is estimated to be $0.17 per metric ton, or less than 1 percent of total estimated project costs,” the study says. “From a damages perspective, the FutureGen site is ‘well-sited’ in a highly rural area, with limited potential to affect sensitive resources.”

The study concludes that most of the projected costs come from paying for emissions offsets to address any CO2 leakage into the atmosphere for projects that fall under an Emissions Trading Scheme. Costs also come from stopping the leak and addressing any contamination concerns and compensating for human health and habitat and possible groundwater damages. The study says that the bump in costs for streams with H2S present is because the chemical is the “primary driver” of estimated human health issues given that it is considered highly toxic at certain levels. Those costs, however, may vary greatly depending on individual project circumstances such as location, plant design, fuel source and technology used. Overall, the report emphasizes that while the chances of a CO2 leak are small, good site selection and monitoring are key to minimizing risks.

Boosting Investor Confidence

Institute staff said they hope the results of the study will help boost confidence in the long-term viability of CCS. “We hope the study will help fill that information gap and provide assurance to proponents, potential investors, governments and the public that in most cases, the likelihood of damages happening is going to be small and that these risks are manageable,” Barry Jones, general manager for Policy and Membership at the Institute, told GHG Monitor. He said that this is the first report in the public domain to quantify and estimate damages of an unplanned occurrence like a leak on a CCS project.

The Institute underscored the report as a resource that could help guide the development of long-term liability frameworks moving forward in various countries worldwide. Last summer, the European Union’s 27 member nations were required to pass national laws providing a legal framework for the geologic storage of CO2 under the ‘CCS Directive.’ The framework allows for project operators to transfer long-term liability responsibility to governments when all evidence indicates that the stored CO2 is permanently contained, at least 20 years after injection at a storage site ceases, on average. Companies are also required to give a financial contribution to governments at the time of the transfer of liability in order to offset many of the costs and ensure post-closure obligations. Debate continues in the U.S. about a scheme clarifying long-term liability rights for projects. Last summer, the Senate Energy Committee passed legislation that would establish a federal indemnification program for the long-term liability of 10 early-mover CCS demonstration projects. However, no action is expected to be taken by the full Senate before the end of the turn.