Statement By

Sandi Tabor

General Counsel

Lignite Energy Council

March 26, 2008

Regarding the Challenges Associated with Rapid Deployment of Large-Scale
Carbon Capture and Storage Technologies

Submitted to

U.S. Senate Committee on Energy and Natural Resources,

Subcommittee on Energy

Thank you for the opportunity to submit written comments and to address
the Subcommittee on the challenges associated with the large-scale
capture and storage of carbon dioxide. I chair a workgroup consisting of
state agencies and industry representatives examining CO~2~
sequestration regulation in North Dakota. My testimony will focus on the
issues facing the federal government and states, like North Dakota, as
we move forward to establish a regulatory framework for the
transportation and storage of CO~2~.

**Overview of the ND Lignite Industry**

The North Dakota lignite industry mines approximately 30 million tons of
lignite every year. At present production levels, North Dakota has more
than an 800-year supply of lignite. Seventy-nine percent of the coal we
mine is used to generate electricity for more than two million people in
the region. North Dakota produces approximately 4,000 megawatts of
power, over half of which is exported to neighboring states.

The North Dakota lignite industry is responsible for 25,000 direct and
indirect jobs in the state. We generate personal income of \$700 million
and over \$2.2 billion of business volume annually. We also pay over
\$80 million in state taxes each year. The lignite industry is a
significant part of the State's overall economy, and is especially
important to western North Dakota.

The primary objective of the Lignite Energy Council is to maintain a
viable lignite coal industry and enhance development of the region's
lignite coal resources. Our membership of over 300 members located
across the Upper Great Plains includes mining companies; major producers
that use lignite to generate electricity, synthetic natural gas and
other valuable byproducts; and businesses that provide goods and
services to the lignite industry.

**Background**

The Lignite Energy Council's message to you today is simple ... in order
for coal to remain a viable energy resource in a carbon-constrained
world we must develop flexible regulations to accommodate the geologic
storage of CO~2~. This mission will be accomplished if the federal
government works with states and quasi-state entities, like the
Interstate Oil and Gas Compact Commission (IOGCC), to develop
regulations that take into account the unique aspects of individual
projects. Regulation of CO~2~ sequestration should provide opportunities
for regulators to make use of the information gained from each project
and recognize the evolution of best practices. Finally, the rules must
provide the regulated community with the certainty needed to make
investment decisions.

The need for a regulatory framework for the geologic storage of CO~2~
was recognized by the U.S. Department of Energy (DOE) and its National
Energy Technology Laboratory (NETL) in 2003 when DOE funded an effort to
develop model rules spearheaded by the Interstate Oil and Gas Compact
Commission's CCGS Task Force (Task Force). The Task Force reviewed the
technology of geologic storage and developed a model statue and model
rules for states to use when developing their own regulatory oversight
of geologic storage of CO~2~. The Task Force model rules provide
detailed guidance on a variety of topics including licensure,
operations, bonding, project development, and closure.

The EPA also began a process for developing regulations for geologic
sequestration utilizing as its platform the Underground Injection
Control (UIC) program of the Safe Drinking Water Act. The timeline for
the process includes distributing draft regulations in June 2008 and
issuing final rules in 2011. The EPA is examining a number of issues,
many of which are addressed in one fashion or another in the Task Force
rules. In particular, the EPA is considering strict well-construction
standards to prevent corrosion; strict secondary containment
requirements such as extra cap-rock to prevent leakage into groundwater
aquifers; periodic evaluation of the geologic area around the well; and
earlier and more frequent public participation provisions. One of the
issues they have not attempted to address deals with property rights,
such as who owns the pore space into which the CO~2~ will be injected.

**North Dakota's Efforts**

On August 2, 2007, the Oil and Gas Division of the Mineral Resources
Department of the ND Industrial Commission (NDIC) published proposed
rules dealing with the storage of carbon dioxide. The rules dealt with
not only enhanced oil recovery (EOR) efforts, but also the long-term
storage of CO~2~. The rules addressed permitting requirements, site
access, eminent domain, permit transferring, amalgamation of subsurface
property rights, operational standards, safety plans, monitoring
requirements, closure requirements and long-term liability.

The Lignite Energy Council presented testimony at a hearing on September
4^th^ raising concerns over the statutory authority for some of the
provisions contained in the proposal. In particular, our comments
discussed eminent domain, cooperative agreements between North Dakota
and government entities outside the state, subsurface property rights,
closure of storage facilities, long-term liability for storage
facilities and jurisdiction over long-term CO~2~ storage. We also asked
the Oil and Gas Division to consider streamlining the permitting process
and to eliminate the requirement for obtaining more than one permit.

In light of the comments received on the proposed rules, the Oil and Gas
Division agreed to pull the proposal from further consideration and to
join a workgroup consisting of representatives from the ND Attorney
General's office, the ND Department of Health, the ND Petroleum Council,
and representatives from the lignite industry. The North Dakota CO~2~
Storage Workgroup (Workgroup) will consider not only the development of
regulations, but also identify statutory changes needed to address state
specific issues, like property rights.

Presently, the Workgroup is reviewing legal issues associated with
certain provisions of the proposed rules. Of particular interest are a
number of potential legislative issues including:

-   Who should regulate the storage of CO~2~ ;

-   Who owns the pore space and how should property interests be
    addressed for purposes of storing CO~2~; and

-   Should the State of North Dakota assume post closure liability for
    the CO~2~ project and if so, should the state implement a long-term
    liability funding mechanism?

The first issue involves which government entity should serve as the
agency responsible for administering CO~2~ storage regulations. In North
Dakota, the NDIC has broad authority over developing and producing oil
and gas. This authority extends to the unitized or collective management
of oil and gas resources for enhanced oil recovery. The NDIC also
oversees the regulation of the long-term presence of CO~2~ once tertiary
recovery has ended.

Current North Dakota law does not authorize the NDIC to regulate the
storage of CO~2~ not associated with enhanced oil recovery (EOR). Under
the UIC program, the ND Department of Health regulates Class 1, 4 and 5
wells, while the NDIC (through the Oil and Gas Division) regulates Class
2 and 3 wells. The EPA issued a guidance document in March 2007
instructing State and EPA Regions to use Class V (experimental
technology wells) when permitting pilot projects designed to evaluate
the technical issues associated with CO~2~ injection projects. Thus, for
purposes of pilot projects in North Dakota, it would appear that the ND
Department of Health would handle a CO~2~ sequestration pilot project
using a Class V permit application. Unfortunately, the EPA guidance
addresses the immediate concern of pilot projects, but it does not
address the larger issue of commercial scale demonstration storage
projects. In light of the fact that Basin Electric Power Cooperative and
the Energy and Environmental Research Center (EERC) plan to conduct a
CO~2~ capture and sequestration project in North Dakota in the near
future, providing guidance regarding regulations is imperative.

The second issue involves the ownership of the pore space into which the
CO~2~ would be injected. The majority view among states is that the pore
space and the subsurface geologic formation belong to the surface owner.
This view is based on the proposition that a landowner owns everything
above and below her land. In fact, it is a view recognized in North
Dakota law. N.D.C.C. § 47-01-12. The question, however, is whether this
North Dakota statute contemplated ownership of the pore space. While it
is an unanswered question in North Dakota, other states have addressed
the issue. For instance, in Wyoming, the state legislature recently
enacted legislation confirming the majority view (H.B. 89, 2008). While
we believe that pore space is owned by the surface owner, the Workgroup
is contemplating the merits of following Wyoming's lead and drafting
legislation for consideration by the 2009 North Dakota Legislative
Assembly.

A more difficult issue is how to deal with a number of surface owners
who may be affected by CO~2~ storage projects. Getting consent from
everyone with an interest is unlikely and questions involving eminent
domain and constitutional protections for private property must be
considered as the regulatory program for long-term storage is developed.
The Workgroup is also considering how best to address this sensitive
issue.

The third issue involves post closure liability or financial assurance
measures for well closure, post-closure monitoring and remediation
practices. Two states have addressed the issue, taking opposite
positions on the solution. For instance, the state of Texas addressed
the ownership and liability issues by statute in May 2006. The law
focused on transferring the right, title and interest in CO~2~ captured
by a clean coal project to the Railroad Commission of Texas on behalf of
the state. The transfer must occur at no cost to the state (other than
administrative and legal costs associated with the transfer). The
transfer does not relieve the owner or operator of a clean coal project
of liability for any act or omission regarding the generation of CO~2~
performed before the CO~2~ was captured, but does alleviate any
potential liability for the storage of the CO~2~. The law allows the
commission to sell CO~2~ that is captured by a clean coal project and
not injected for permanent storage in a geologic formation.

On the other hand, the state of Washington placed full liability on
project developers to ensure that CO~2~ is safely stored for the long
term under proposed regulations scheduled to be finalized by the end of
June.

Another state that has considered CO~2~ sequestration issues is Wyoming.
The Wyoming legislature recently enacted two bills establishing the
framework for a regulatory program and addressing property rights.
Neither bill, however, addressed the liability issue, deferring the
issue for more debate later in the year.

The EPA has also struggled with the issue of financial assurance
measures. For example, they wonder whether they should require
post-closure well monitoring, and if so, for how long after closure.
They question what standards should be used to determine whether
monitoring is required. Another issue involves financial assurances to
cover monitoring costs and remediation costs in the event of
contamination. There is some discussion that the monitoring period could
last as long as 300 years. With this in mind it is no wonder that the
federal government and states alike are skittish when it comes to
addressing the issue.

The Task Force rules provide a framework to address the long-term
liability during the post-closure period. The major issue with
post-closure is how to deal with long-term monitoring and liability
issues. Under the Task Force model rules the operational bond is
released at the conclusion of the closure period. Regulatory liability
for ensuring that the site remains a secure storage site is transferred
to a trust fund administered by the state or a state-contracted entity.
Future monitoring, verification and remediation activities are paid for
by a state administered trust fund. Revenues generated from a per ton
injection fee assessed to the site operator provide the operating
capital for the trust fund.

As the North Dakota Workgroup tackles the long-term liability issue, we
will look to the Task Force model rules for guidance. Our concern is
that stored CO~2~ not be treated as a hazardous waste with the
associated tentacles of liability which stretch far into the future
(perhaps 300 years or more).

**Conclusion**

In summary, we applaud the EPA's efforts to involve many groups and
individuals in the regulatory process. There are simply too many issues
that require joint cooperation between the federal government, state
governments and industry, in particular resolving long-term liability
questions and establishing a mechanism to fund long-term monitoring
requirements. It is important, however, to recognize that certain
issues, like eminent domain and property rights, fall within the preview
of the state. Although the efforts of the Department of Interior as it
evaluates how to handle pore space issues on federal lands may prove
instructive. Unfortunately, the demand for guidance from companies ready
to begin CO~2~ demonstration projects may force states like North Dakota
to develop regulations earlier than present federal timelines.

We should also remember to capitalize on the experiences of entities
like the EERC and the Weyburn project in Canada regarding the injection
of CO~2~ for EOR. The storage of CO~2~ during EOR sheds light on many of
the questions being raised about what will happen to CO~2~ during
geologic storage.

And finally, there are three points from the Lignite Energy Council's
position on global climate change that merit consideration. First, CO~2~
must not be treated as a hazardous waste. Second, CO~2~ used for EOR
must be treated as a commodity. And finally, the federal government must
work with state governments and industry to resolve issues surrounding
long-term liability for CO~2~ sequestration. We are hopeful that as the
development of regulations continues, open doors and open minds will
prevail, and that reasonably flexible regulations will be developed.

Thank you for your consideration.