2022年12月2日

Carbon Capture and Storage– from Risk & Insurance Perspective
For Japan CCS Forum 2022
Masayuki Kobayashi, CCUS team LeadVer 1.1

1 December 2022

Agenda• TMNF CCS Team• Risks in CCS Value Chain• Carbon Pricing Scheme• Insurance• Concluding Remarks
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TMNF CCS team
Dedicated team serving for offshore projects with experience and expertise Specialized team for CCS
 Deep insight of the industry with background of upstream/downstream energy Building global network to obtain the industry’s cutting-edge knowledge
 To offer bespoke innovative risk transfer solution to clients A member of a governmental working group for CCS

Japan CCS Forum 2022｜Ⓒ2022 Tokio Marine & Nichido Fire Insurance Co.,Ltd.

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Overview - CCS Value Chain
 Emission, Capture, Transport by Pipeline and/or Vessel, Injection andGeological Storage

Japan CCS Forum 2022｜

Sources : Global CCS Institute and EquinorⒸ2022 Tokio Marine & Nichido Fire Insurance Co.,Ltd.

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Major Risks Categories in Integrated CCS Projects
Overview of general understanding of the risks surrounding the projects

CaptureTransportStorage

Project Wide Health and Safety Health and Safety

 CO2 Leakage

 Value Chain Integration

 Environmental Damage

 Pipeline Leakage

 Damage to Projectfacilities Technology Performance Technology Performance Shipping Leakage

 Technology Development
 Energy and Carbon Price Third Party Access Decommissioning Costs
 Measurement andMonitoring Alternative Storage Site

 Change in Law
 Public Perception
 Cost of Financing

 Health and Safety Capital Cost

 Environmental Damage
 Financial Security
 Third Party Access

Japan CCS Forum 2022｜Ⓒ2022 Tokio Marine & Nichido Fire Insurance Co.,Ltd.

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CO2 – Properties and Behavior
What do we know about CO2?

 Is CO2 dangerous?

Japan CCS Forum 2022｜Ⓒ2022 Tokio Marine & Nichido Fire Insurance Co.,Ltd.

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CO2 – Properties and Behavior
Potential threats are known and manageable but could be a cause major accients.

 CO2 is well known substance and the industry know how to manage it.
 However, if you fail, it may cause or contribute to major accidents.

 CO2 is a toxic substance..
 CO2 when inhaled above around 5% in air is a threat to life.

Japan CCS Forum 2022｜

Source DNV-GLⒸ2022 Tokio Marine & Nichido Fire Insurance Co.,Ltd.

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CO2 – Properties and Behavior
Potential threats are known and manageable but could be a cause major accients.

 CO2 is well known substance and the industry know how to manage it.
 However, if you fail, it may cause or contribute to major accidents.

 Free water combined with the highCO2 pressure may cause severeinternal corrosion in pipeline due tothe formation of carbonic acid

Japan CCS Forum 2022｜

Source LenntechⒸ2022 Tokio Marine & Nichido Fire Insurance Co.,Ltd.

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CO2 – Properties and Behavior
Potential threats are known and manageable but could be a cause major accients.

 CO2 is well known substance and the industry know how to manage it.
 However, if you fail, it may cause or contribute to major accidents.

 Carbon steel can get cold and brittle
enough to crack in CO2 stream.
 Small brittle fracture could grow topropagating cracks very fast driven
by the initial pipeline pressure.

Japan CCS Forum 2022｜

Source : DNV-GLⒸ2022 Tokio Marine & Nichido Fire Insurance Co.,Ltd.

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What happened if you fail to sequestrate and store CO2?
Case Study | Large LNG project with CCS facility faced difficulties.

 $70 billion LNG Project with $3 billion facilities associated with carbon
capture.
 Planned to store 4 million t-CO2 per year but only achieved half of that.
 The first CO2 injection was delayed and the project then encountered further
difficulties after it commissioning, with sand clogging parts of the storage
system and dramatically reducing the amount of CO2 it was able to inject
underground.
 Associated CCS was one of the key conditions for state government approval.
 Failure to meet the approval resulted in the Operator acquiring andsurrendering 5.23 million greenhouse gas offsets from carbon markets
to offset the emissions that they failed to store.
Japan CCS Forum 2022｜Ⓒ2022 Tokio Marine & Nichido Fire Insurance Co.,Ltd.

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Carbon Pricing Scheme – Effects on CCS Industry
Key driver to the industry

 Economic incentive to enhance decarbonization utilizing market forces.
 Emission Trading System / Carbon Credits / Tax Credit can play significant
role for deployment of commercial CCS projects.
Voluntary Carbon Market• i.e. Offset• Lack of transparency and regulation• Many different schemes and ideas
Regulated/Mandatory/Compliance• i.e. Cap and Trade• More stable trading environment but no overall rules and regulation• It is estimated that the Compliance carbon trading market was worth in excess of USD 200bn in 2020.
Carbon Tax / Tax Credit• i.e. Petroleum Tax, Production Tax, 温対法• A Tax levied on the carbon emissions required to produce goods and services• Tax credit is also considered as an option to enhance introduction of carbon removal.
Japan CCS Forum 2022｜Ⓒ2022 Tokio Marine & Nichido Fire Insurance Co.,Ltd.

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Carbon Pricing Scheme – Influence on CCS Industry
Example | EU/UK Emission Trading System (Compliance)

 A “cap and trade” scheme designed to meet EU/UK’s contribution to theParis Agreement.
 Each year emitters of greenhouse gases must obtain & surrender “EUAs” tomatch their emissions.
EUA = European Union Allowance••

Each EUA represents 1t-CO2
or CO2 equivalent on N2O, PFC

EmitterBuy EUAs via commercial trade

EU-ETS

EU-ETS
Buy EUAs at auction

Emitter

Free EUA allocation

Surrender the required EUAs
each yearEU-ETSJapan CCS Forum 2022｜Ⓒ2022 Tokio Marine & Nichido Fire Insurance Co.,Ltd.

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Carbon Pricing Scheme – Influence on CCS Industry
Example | UK Emission Trading System (Compliance) UK government support for CCS projects will be underpinned by a legal andregulatory framework associated with ETS.
 Included in these will be specific requirements.
“…… will secure appropriate insurance which is likely to include coverage for costs
arising from CO2 Leakage Risk, including in relation to: a) business interruption(including debt service); b) remediation (including damage to the environment); and c)
carbon allowances”
“……. shall ensure that insurances are placed and maintained with insurers or
underwriters of reputable standing with a minimum rating specified”
“The Regulator will check that …… has sufficiently tested the insurance market and will
satisfy itself that ……. insurance procurement obligation has been met and that adequate
and suitable quantum and coverage has been sought effectively and obtained.”
Japan CCS Forum 2022｜

Source : UK BEIS

Ⓒ2022 Tokio Marine & Nichido Fire Insurance Co.,Ltd.

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Carbon Pricing Scheme – Influence on CCS Industry
US Tax Credit for carbon sequestration (Section 45Q)

 The US Government is offering Tax Credits to companies engaged in CarbonCapture.
 Whilst the credit can be given, they can be taken away.

Japan CCS Forum 2022｜Source : US IRSⒸ2022 Tokio Marine & Nichido Fire Insurance Co.,Ltd.

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CCS - Risk and Insurance
Insurers have established solutions to existing exposures
Offshore

CONSTRUCTION

OPERATIONALPROPERTY

COVERING ALL DECLARED PROJECT’S PROPERTYREINSTATEMENT OF PROJECT’S PROPERTYCORROSION IS TYPICALLY EXCLUDEDDAMAGE TO 3RD
PARTY / TIE - IN

2nd PARTY TIE-IN HOST FACILITIES ANDCONSEQUENTIAL LOSS IS KEY RISKLIIMTS DEPEND ON PROXIMITY TO OTHER FACILITIESAND POLLUTION RISKDRILLING/ BLOW-OUTRIG CONTRACT TERMS TO ENSURE BACK TO BACK+ GOVERNMENT “FINANCIAL RESPONSIBILITIES”

LIMITS NEED TO REFLECT ANY MULTI RE-DRILLSCENARIOLOSS OFPROFITSDELAY IN START UP – NOT USUAL TO OFFSHORECOVERING LOSS OF PROFITS TO RESPOND ON A PREAGREED UNIT VALUE AND PRODUCTION VOLUME

3rd PARTY BODILY INJOURY AND PROPERTY DAMAGE+ SUDDEN AND ACCIDENTAL POLLUTION FROMRESERVOIR AND/OR PROCESS FACILITIESTHIRD PARTY
LIABILITY incl.
POLLUSION
Japan CCS Forum 2022｜Ⓒ2022 Tokio Marine & Nichido Fire Insurance Co.,Ltd.

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CCS - Risk and Insurance
Further consideration may be needed to emerging exposures

 In case of CO2 leakage, there must be a need to cover costs of offset.
 There remains challenges and uncertainty and products are still underdevelopment.
New Exposure• Indemnity for leakage of CO2
arising from CCS activity.
• Recovery based on voluntary credit/ ETS / tax credit

Challenges for Insurers• Lack of historic data

• Reservoir risk assessment• MMV programme• Post-Closure phase• Volatility of ETS / credit pricewhen setting limits• Regulatory changes

Japan CCS Forum 2022｜Ⓒ2022 Tokio Marine & Nichido Fire Insurance Co.,Ltd.

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Summary Identifying the risks surrounding the project is a first step and important action.
 Properties of CO2 can cause major accidents but manageable as long as
equipped with appropriate measures.
 ETS/Carbon Credits/Tax Credit can play a significant role to spreadcommercial CCS projects but it can also be novel exposures to stakeholders.
 Insurance industry has established knowledge and solution for existing risks.
 Insurers are preparing for offering new solutions addressing emerging risks
that CCS industry could face.
 We TMNF are always welcoming discussion how we can support CCS
industry in Japan and across the world.
Japan CCS Forum 2022｜Ⓒ2022 Tokio Marine & Nichido Fire Insurance Co.,Ltd.

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Thanks for listening!

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