Order Code RL34307

Regulation of Carbon Dioxide (CO2)

 Sequestration Pipelines: Jurisdictional Issues

Updated April 15, 2008

Adam Vann

Legislative Attorney

American Law Division

Paul W. Parfomak

Specialist in Energy and Infrastructure Policy

Resources, Science, and Industry Division
Regulation of Carbon Dioxide (CO2)

 Sequestration Pipelines: Jurisdictional Issues

Summary

In the last few years there has been a surge in interest in carbon capture and

sequestration (CCS) as a way to mitigate manmade carbon dioxide (CO2) emissions

and thereby help address climate change concerns. This approach may require the

transportation of captured carbon dioxide via pipeline to an underground storage

reservoir with the intent of keeping it out of the atmosphere. Congress has begun to

address this issue.

The recently enacted Energy Independence and Security Act of 2007 (P.L. 110-

140) contains measures to promote research and development of CCS technology,

to assess sequestration capacity, and to clarify the framework for issuance of CO2

pipeline rights-of-way on public land. Other legislative measures, including S. 2191

and S. 2323, have also sought to encourage the development of CO2 sequestration,

capture, and transportation technology. Further, measures have been introduced in

Congress, including the Carbon Dioxide Pipeline Study Act of 2007 (S. 2144), that

would require the Secretary of Energy to study the feasibility of constructing and

operating a network of CO2 pipelines for CCS. If these pipelines crossed state lines,

it could raise important issues concerning regulatory jurisdiction over siting and

pricing.

This report discusses federal jurisdictional uncertainty over CO2 pipelines under

existing law, as well as potential legislative activity to address any possible

regulatory “gap” in jurisdiction. It should be noted that such a potential gap does not

necessarily demand federal legislative resolution. Nevertheless, some analysts,

drawing on the history of oil and natural gas pipeline development, anticipate a

potential need for better defined federal legislative/regulatory authority over an

interstate CO2 pipeline network. Accordingly, Congress may be called upon to

consider whether existing federal jurisdictional disclaimers and the state-by-state

regulatory structure for Enhanced Oil Recovery (EOR) pipelines is an appropriate

regulatory scheme for a possible interstate CO2 pipeline network in support of CCS.

Congress could opt to amend existing statutes, possibly those related to the interstate

pipeline jurisdiction of the Federal Energy Regulatory Commission (FERC) or the

Surface Transportation Board (STB) to provide for definitive CO2 pipeline rate

jurisdiction by the federal government if it does not favor the existing regulatory

scheme. Alternatively, Congress could establish another federal regulator of CO2

pipelines or possibly other legislation to amend the existing regulatory scheme.
Contents

Introduction ......................................................1

History and Background ............................................1

Recent Carbon Control Activity ..................................2

FERC and STB Pipeline Jurisdiction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

Prior CO2 Pipeline Regulation: Cortez Pipeline . . . . . . . . . . . . . . . . . . . . . . 4

FERC Decision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

ICC Decision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

Potential Issues Related to ICC Jurisdiction . . . . . . . . . . . . . . . . . . . . . 6

Policy Implications of the Possible Regulatory “Gap” . . . . . . . . . . . . . . . . . . . . . 7
Regulation of Carbon Dioxide (CO2)

Sequestration Pipelines:

Jurisdictional Issues

Introduction

In the last few years there has been a surge in interest in carbon capture and

sequestration (CCS) as a way to reduce carbon dioxide (CO2) emissions, and thereby

help to address concerns about climate change. The recently enacted Energy

Independence and Security Act of 2007, P.L. 110-140, contains measures to promote

research and development of CCS technology and assess sequestration capacity,

including a measure to clarify the framework for issuance of CO2 pipeline rights-ofway on public land. Other legislative proposals, including S. 2191 and S. 2323, have

also sought to encourage the development of CO2 sequestration, capture, and

transportation technology. Further, measures have been introduced in Congress,

including the Carbon Dioxide Pipeline Study Act of 2007 (S. 2144), which would

require the Secretary of Energy to study the feasibility of constructing and operating

a network of CO2 pipelines for CCS.

If interstate CO2 pipelines for carbon sequestration are ultimately developed,

they could raise a variety of issues concerning jurisdiction over the siting of these

pipelines and the prices they may charge for their transportation services. While

jurisdiction over CO2 pipeline safety resides with the Office of Pipeline Safety (a

branch of the Department of Transportation), jurisdiction over hypothetical interstate

CO2 pipeline siting and rate decisions is not clear. Jurisdiction could fall to the

Federal Energy Regulatory Commission (FERC) or to the Surface Transportation

Board (STB). However, both agencies have at some point expressed a position that

interstate CO2 pipelines are not within their purview.

This report reviews the history of pipeline regulation, including the limited

history of interstate CO2 pipeline regulation, and examines the regulatory missions

of FERC, the STB, and other agencies. The report discusses possible responses to

preceived jurisdictional uncertainties under existing law as well as potential

legislative steps intended to address any potential regulatory “gap” in interstate CO2

pipeline jurisdiction.

History and Background

The transportation of CO2 via pipeline is not a hypothetical concept, nor even

a recent development. For many years companies have moved CO2 from one

location to another for enhanced oil recovery (EOR) — a process which extends oil
CRS-2

1

 U.S. Dept. of Energy, “Enhanced Oil Recovery/CO2 Injection,” web page (June 12, 2007).

[http://www.fossil.energy.gov/programs/oilgas/eor/index.html].

2

 U.S. Dept. of Transportation, National Pipeline Mapping System database (June 2005).

[https://www.npms.phmsa.dot.gov].

3

 Kinder Morgan CO2 Company, “Canyon Reef Carriers Pipeline (CRC),” web page (2007).

[http://www.kindermorgan.com/business/co2/transport_canyon_reef.cfm].

4

 For a detailed discussion of CCS, see CRS Report RL33801, Carbon Capture and

Sequestration (CCS), by Peter Folger.

5

 See, alternative views in: R.T. Dahowski, J.J. Dooley, C.L. Davidson, S. Bachu, N. Gupta,

(continued...)

production from mature oil fields. There are several EOR methods, but gas injection,

dominated by CO2 injection, accounts for nearly 50% of EOR production in the

United States.1 During this process, CO2 is injected underground at an oil field,

forcing more oil from the reservoir to the extraction wells, ultimately increasing the

amount of oil that can be recovered from a given field.

Approximately 5,800 kilometers (3,600 miles) of CO2 pipeline operate today in

the United States.2 The oldest long-distance CO2 pipeline in the United States

constructed for EOR is the 225 kilometer Canyon Reef Carriers Pipeline (in Texas),

which began service in 1972.3 Other large CO2 pipelines constructed since then,

mostly in the Western United States, have expanded the CO2 pipeline network for

EOR. These pipelines carry CO2 from naturally occurring underground reservoirs,

natural gas processing facilities, ammonia manufacturing plants, and a large coal

gasification project to regional oil fields. Additional pipelines may carry CO2 from

other manmade sources to supply a range of industrial applications. However, with

one notable exception discussed below, federal regulation of siting and rates for these

pipelines has not been addressed, due in large part to the fact that many of them are

intrastate and that they often transport CO2 for the benefit of the pipeline’s owners

(so there are no rate or service disputes).

Recent Carbon Control Activity

In recent years, the public, the press, and government officials have shown

increasing concern about global climate change. Many have suggested that recent

increases in the global temperature, as well as future anticipated increases, are the

result, at least in part, of emissions of large quantities of CO2 from manmade sources.

One of the more prominent ideas to limit CO2 emissions, especially CO2 emissions

from power plants, is carbon capture and direct sequestration (CCS). CCS is a

process whereby CO2 emissions are “captured” at their source and then stored

(“sequestered”) either underground or elsewhere, rather than being released into the

atmosphere.4

CCS science and associated technology are still in the early stages of

development. Among many questions yet to be answered is whether we may

ultimately see a large number of sequestration sites located geographically close to

CO2 source facilities, or a smaller number of more centralized, or more distant,

sequestration locations.5

 If a widespread CCS network does develop, whether that
CRS-3

5

 (...continued)

and J. Gale, “A North American CO2 Storage Supply Curve: Key Findings and Implications

for the Cost of CCS Deployment,” Proceedings of the Fourth Annual Conference on Carbon

Capture and Sequestration (Alexandria, VA: May 2-5, 2005); and Jennie C. Stevens and

Bob Van Der Zwaan, “The Case for Carbon Capture and Storage,” Issues in Science and

Technology, vol. XXII, no. 1 (Fall 2005): 69-76.

6

 15 U.S.C. 717f(c).

7

 49 App. U.S.C.§1.

8

 Id. at 1(1), 1(4), and 1(7).

9

 P.L. 95-224.

10 Section 1801 of the Energy Policy Act of 1992 directed FERC to “promulgate regulations

establishing a simplified and generally applicable ratemaking methodology” for oil pipeline

transportation. 

network features decentralized or centralized storage configurations remains to be

seen; however, pipeline requirements and storage configurations are necessarily

related. If sequestration is widely used and relatively centralized, a significant

interstate pipeline network would likely be required to transport the CO2 to the

sequestration sites.

FERC and STB Pipeline Jurisdiction

If an interstate pipeline system for CCS more extensive and elaborate than the

current pipeline network for EOR is to be developed, questions arise as to who will

regulate pipeline siting and the rates to be charged for the transportation of CO2.

Based on their current regulatory roles, two of the more likely candidates for

jurisdiction over interstate pipelines transporting CO2 for purposes of CCS are the

Federal Energy Regulatory Commission (FERC) and the Surface Transportation

Board (STB).

The Natural Gas Act of 1938 (NGA) vests in FERC the authority to issue

“certificates of public convenience and necessity” for the construction and operation

of interstate natural gas pipeline facilities.6 FERC is also charged with extensive

regulatory authority over the siting of natural gas import and export facilities, as well

as rates for transportation of natural gas and other elements of transportation service.

FERC also has jurisdiction over regulation of oil pipelines pursuant to the Interstate

Commerce Act (ICA).7 The ICA, as amended by the Hepburn Act of 1905, provided

that the Interstate Commerce Commission (ICC) was to have jurisdiction over rates

and certain other activities of interstate oil pipelines, as these pipelines were

considered to be “common carriers.”8 This jurisdiction was transferred to FERC in

the Department of Energy Organization Act of 1977.9 FERC’s jurisdiction over oil

pipelines is not as extensive as its jurisdiction over natural gas pipelines. FERC is

not involved in the oil pipeline siting process. However, as with natural gas, FERC

does regulate transportation rates and capacity allocation for oil pipelines.10

FERC is assigned jurisdiction over natural gas and oil pipelines explicitly in

statutory language. Jurisdiction over rate regulation for “other” types of pipelines

resides with the STB. The STB is an independent regulatory agency (administratively
CRS-4

11 49 U.S.C. § 1-501(a)(1)(c).

12 15 U.S.C. § 717(a)(5).

13 Cortez Pipeline Company, 7 FERC ¶ 61,024 (1979).

14 Id. at 61,041.

15 Id.

affiliated with the Department of Transportation) charged by Congress with the

primary mission of resolving railroad disputes pursuant to the ICA. It is the

successor agency to the ICC. Pipelines, like railroads, are “common carriers” used

by more than one company for the transportation of goods. Therefore, the ICA also

assigned the ICC (and thus the STB) oversight authority over pipelines transporting

a commodity other than “water, gas or oil.”11 It should be noted, however, that unlike

FERC, the STB does not require pipeline companies to file tariffs and justify their

rates. Instead, the STB acts as a forum for resolution of disputes related to pipelines

within its jurisdiction. Parties who wish to challenge a rate or another aspect of a

pipeline’s common carrier service may petition the STB for a hearing; there is no

ongoing regulatory oversight.

Thus, there are two federal regulatory agencies that, generally speaking, have

jurisdiction over interstate pipeline rate and capacity allocation matters. However,

as explained below, both of these agencies appear to have explicitly rejected

jurisdiction over CO2 siting and rates, and there is no legislative or judicial history

indicating that their rejections were improper. These decisions, the reasoning behind

them, and the status of federal jurisdiction over CO2 pipelines are covered in the next

section.

Prior CO2 Pipeline Regulation: Cortez Pipeline

As mentioned above, CO2 is used for enhanced oil recovery, and in some cases

companies have used pipelines to transport CO2 over state lines (i.e., in interstate

commerce) for EOR purposes. One such pipeline of regulatory significance is the

Cortez Pipeline, which runs through Colorado, New Mexico, and Texas. 

FERC Decision. In December of 1978, the Cortez Pipeline Company

(Cortez) sought a declaratory order from FERC that the construction and operation

of a proposed interstate pipeline transporting a gas comprising of 98% CO2 and 2%

methane would not be within the Commission’s jurisdiction. Cortez argued that the

gas in question was not “natural gas” as the term is defined in Section 2(5) of the

NGA,12 so a proposed pipeline to transport this gas was not under FERC’s NGA

jurisdiction. FERC agreed with Cortez and issued a declaratory order disclaiming

jurisdiction over the proposed pipeline.13 In its decision, FERC explored the inherent

ambiguity in the term “natural gas,” explaining that it has two very different

definitions. FERC recognized that in the terminology of chemistry, “natural gas”

refers to any substance that is gaseous in its natural state, including carbon dioxide.14

However, according to FERC, the more common usage of the term “natural gas”

refers to a gaseous mixture of hydrocarbons.15 FERC held that it was this meaning

of “natural gas” that applied to the term as it was used in the NGA. FERC pointed
CRS-5

16 Id.

17 Id.

18 Id. at 61,042.

19 Cortez Pipeline Company — Petition for Declaratory Order — Commission Jurisdiction

Over Transportation of Carbon Dioxide by Pipeline, 45 Fed. Reg. 85177 (December 24,

1980). 

20 Id.

21 49 U.S.C. § 1-501(a)(1)(c).

22 Cortez Pipeline Co., 45 Fed. Reg. at 85178.

23 Id. at 85178.

24 Id.

to the goals and purposes of the NGA, which are primarily to regulate a specific

“natural gas” industry.16 Thus, the term “natural gas” as used in the statute referred

to a gaseous mixture of hydrocarbons.17 As a result, FERC held that the proposed

Cortez Pipeline was not within the NGA jurisdiction of the Commission.18

ICC Decision. In 1980, after FERC issued its CO2 ruling, the owners of the

proposed Cortez Pipeline went to the ICC to seek a similar declaratory order that the

pipeline would not be subject to the ICC’s jurisdiction either. As the ICC recognized

at the outset of its decision, there was no controversy concerning whether ICC

approval was necessary for construction or expansion of pipeline facilities — the

statute and previous case law plainly state that the ICC has no pipeline siting

jurisdiction whatsoever.19 Furthermore, the ICC noted that the U.S. Department of

Transportation would exercise jurisdiction over the pipeline’s compliance with

applicable safety standards.20 Instead, the decision focused solely upon the ICC’s

regulation of other aspects of pipeline service (i.e., rates), and whether CO2 pipelines

are covered by the statutory exception from ICC regulation for pipelines that

transport “water, gas or oil.”21

Relying on the legislative history of previous versions of the statutory language

in the ICA (which excluded “natural or artificial gas”) as well as the plain language

of the current statute, the ICC concluded that Congress intended to exclude all types

of gas, including CO2, from ICC regulation. The ICC recognized that its initial ruling

in this matter, in concert with FERC’s order disavowing jurisdiction over the

proposed Cortez Pipeline, created a regulatory gap of sorts. The ICC noted that

generally, “[t]he opinion of a sister agency should be given weight, if possible, so

that related statutes can be coordinated.”22 However, the ICC found that “in this case

the FERC decision is not helpful to us because it did not construe or interpret the

terms natural and artificial gas [under the ICA]. Its decision was based on other

grounds.”23 Although the ICC found in this initial decision that it likely did not have

jurisdiction over CO2 pipelines, it did conclude that “the issue is important enough

to institute a proceeding and accept comments on the petition and our view on it.”24
CRS-6

25 Cortez Pipeline Company — Petition for Declaratory Order — Commission Jurisdiction

Over Transportation of Carbon Dioxide by Pipeline, 46 Fed. Reg. 18805 (March 26, 1981).

26 Now known as the Government Accountability Office.

27 GAO Report: SURFACE TRANSPORTATION: Issues Associated With Pipeline

Regulation by the Surface Transportation Board, April 1998.

28 Id. at 27.

29 Surface Transportation Board (STB), Personal communication, (December 2007). The

STB Office of Governmental and Public Affairs informed CRS that the board recognizes

the conflict between this GAO report and the ICC decision (as well as the wording of 49

C.F.R. § 15301 governing STB jurisdiction over pipelines other than those transporting

“water, gas or oil”). However the office did not want to state an opinion as to the current

extent of STB jurisdiction over CO2 pipelines and suggested that the STB would likely not

act to resolve this conflict unless a CO2 pipeline dispute comes before it.

30 Chevron U.S.A. v. Nat. Res. Def. Council, 467 U.S. 837, at 863-64 (1984).

After the comment period the ICC confirmed its view that CO2 pipelines were

excluded from the ICC’s jurisdiction.25

Potential Issues Related to ICC Jurisdiction. Notwithstanding the ICC’s

1980 disclaimer of jurisdiction over CO2 pipelines in the Cortez Pipeline case, other

evidence indirectly suggests the possibility that interstate CO2 pipelines could still

be considered subject to the jurisdiction of the STB. For example, an April 1998

report by the General Accounting Office (GAO)26 stated that interstate CO2 pipelines,

as well as pipelines transporting other gases, are subject to the board’s oversight

authority. The report stated that GAO had identified five products carried by 21

pipelines subject to the STB’s jurisdiction.27 One of the five identified products was

CO2. (Another was hydrogen — also a gas). In fact, the report lists 14 different

pipelines transporting CO2 for purposes of EOR, including the Cortez Pipeline,

which are said to be subject to the jurisdiction of the STB.28 The GAO states that the

STB reviewed its analysis and, presumably, did not object to this jurisdictional

classification.29

It should also be noted that the Cortez Pipeline decision was issued by the ICC,

not the STB. Although the STB is the successor to the now-defunct ICC, and the

statutory language regarding the STB’s jurisdiction is virtually identical to the

language at issue in the Cortez decision, they are not the same agency. The STB

conceivably could determine that its jurisdiction is not governed by the ICC’s

decision in the Cortez Pipeline matter. Indeed, the Supreme Court has ruled that

federal agencies are not precluded from changing their positions on the issue of

regulatory jurisdiction. According to the Court, “an initial agency interpretation is

not instantly carved in stone. On the contrary, the agency, to engage in informed

rulemaking, must consider varying interpretations and the wisdom of its policy on a

continuing basis.” 30 Accordingly, regulation of CO2 pipelines for CCS purposes by

the STB (or by FERC, for that matter) under existing statutes remains a possibility.
CRS-7

31 See, for example, Philip M. Marston, “Doing the Deal: Legal and Regulatory Aspects of

the Evolving CCS Regime in the USA,” Proceedings of the 2e Collogue International

Captage et Stockage Géologique du CO2, Paris, France (October 4-5, 2007), at: 3.

[http://www.colloqueco2.com/presentations2007/ColloqueCO2-2007_Session4_1-

MARSTON.pdf].

32 M.A. de Figueiredo, H.J. Herzog, P.L. Joskow, K.A. Oye, and D.M. Reiner, “Regulating

Carbon Dioxide Capture and Storage,” MIT Center for Energy and Environmental Policy

Research, Working Paper 07-003 (April 2007), at: 5.

Policy Implications of 

the Possible Regulatory “Gap”

If CCS technology develops to the point where interstate CO2 pipelines become

more common, and if FERC and the STB continue to disclaim jurisdiction over CO2

pipelines, then the potential regulatory “gap” discussed above may receive attention.

This gap does not necessarily demand resolution. As commenters have noted, state

laws and contractual arrangements among interested parties established under the

EOR model would also apply to CO2 pipelines for CCS.31 Interstate CO2 pipelines

would still be required to meet the safety requirements of the Department of

Transportation. Also, although there would be no federal rate regulation, any anticompetitive behavior by the owners or operators of a CO2 pipeline could be

addressed by federal antitrust enforcement agencies, including the Federal Trade

Commission and the antitrust division of the U.S. Department of Justice. Finally,

any pipelines needing to cross federal lands would be required to obtain a right-ofway from the federal government, and so would be subject to any conditions such

rights-of-way might impose.

Nevertheless, some analysts, drawing on the history of oil and natural gas

pipeline development, anticipate a potential need for better defined federal regulatory

authority over a potential expansive CO2 pipeline network.32

The growth of these sectors and the growing importance of transportation, abuses

of market power, price discrimination and other issues, including conflicts

between state and federal authorities led both to preemption by the federal

government and administrative regulation. As the CO2 transport and storage

sector grows, similar issues of regulatory frameworks and the mix of federal and

state jurisdiction are likely to have to be confronted, as has been the case for all

network industries in the United States. The eventual economic regulatory

development for CCS will need to consider the varying approaches taken for oil

and natural gas, and the serious problems that their history experienced. 

Thus, Congress may ultimately be asked to consider whether the existing federal

jurisdictional disclaimers and the state-by-state regulatory structure for EOR

pipelines is an appropriate regulatory scheme for a potential national CO2 pipeline

network in support of CCS. Congress could choose to amend existing statutes to

provide for definitive CO2 pipeline rate jurisdiction by the federal government if it

does not favor the existing regulatory scheme. FERC and the STB are two

candidates for administration of such oversight. Alternatively, Congress could

establish another federal regulator of CO2 pipelines, or enact legislation addressing

specific aspects of the existing regulatory structure for EOR.