This comment letter response contains two parts:

(1) The original submittal from the commenter. (2) A data base printout of EPA’s response to each point raised by the commenter.

Notes about the response letters:

• The response letters were generated by a data base used to track the content of all public

comment submittals and ensure that the Agency responds to each. Each comment letter

was assigned a Letter ID that corresponds to the last four digits of the docket number of the
original comment (as posted on www.regulations.gov).

• Each response letter includes: comment text; an EPA

‐ assigned comment code; and an
individual response. These are described and explained below.

• The data base contains Comment text from the letters submitted by commenters.
Many hard copy letters were scanned into electronic format for inclusion in the data

base. As a result, there may be some typographical errors attributable to optical

character recognition issues. However, all original submittals were reviewed in the

process of drafting responses to ensure that the comment content was understood and
appropriately addressed.

• The content of each comment letter was divided into topic areas and assigned a unique

Comment ID. Additionally, one or more Comment Codes (i.e., unique topic area ID) was assigned to each discrete point raised by a commenter. This information was added to

the data base. To inform final rulemaking decisions, all comments and information

received on a given topic were reviewed by technical experts in each rule area (e.g., on

construction requirements).

• Following decisions on the final rule requirements, Individual responses were drafted
by topic area to ensure completeness and consistency of the responses with the final

rule and other responses to similar comments. Each discrete point made by a

commenter was given a unique response.

• Upon completion of comment responses, all information was entered into the data base.

Each letter response is a compilation of each comment and its individual response, compiled in the order of the original comment letter. As a result of this process, there is
repetition in the response text. The Agency believes this approach ensures completeness

and attention to each comment letter that was submitted.

• All comments in a topic area were reviewed, evaluated, and responded to concurrently.

Responses on each topic area are compiled and are also available in the rulemaking docket.12012 Wickchester Lane, Suite 660 Houston, Texas 77079

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- 8481 December 23, 2008

Cynthia C. Dougherty

Director Office of Ground Water and Drinking Water U. S. Environmental Protection Agency 1200 Pennsylvania Ave., NW. Washington, DC 20460

Dear Director Dougherty:

COMMENTS OF BLUE SOURCE LLC

ON THE EN VIRONMENTAL PROTECTION AGENCY’S

PROPOSED RULEMAKING UNDER THE SAFE DRINKING WATER ACT’S

UNDERGROUND INJECTION CONTROL PROGRAM FOR CARBON DIOXIDE GEOLOGIC SEQUESTRATION WELLS

DOCKET ID NO. EPA

- HQ

- OW

- 2008

- 0390

December 23, 2008

Blue Source LLC (Blue Sour ce) is pleased to submit these comments on the

Environmental Protection Agency’s (EPA) proposed regulations for the injection and

geologic storage of carbon dioxide (CO 2 ) under the authority of the Safe Drinking Water

Act (SDWA)’s underground injection con trol (UIC) program, issued in July 2008

( D ocket ID N o . EPA

- HQ

- OW

- 2008

- 0390 ).12012 Wickchester Lane, Suite 660 Houston, Texas 77079

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- 8481 I. About Blue Source

Blue Source ( .bluesource.com ) offers businesses multiple approaches for

reducing greenhouse gas emissions associat ed with climate change. We provide access

to capital to fund project development, work with companies on developing projects and

oversees production of long

- term verified emission reductions. We are a portfolio

company of First Reserve Corporation, a lea ding private equity investor in the energy

industry, who since 2006 has been a major equity partner in the company, and certain

affiliated investment funds of Och

- Ziff Capital Management Group LLC.

Blue Source is specifically interested in EPA’s proposal b ecause we have

significant knowledge and experience in developing c arbon c apture and s torage (CCS)

systems across North America. Our management is in the unique position of having

developed, designed, constructed, operated or owned nearly all of the comme rcially

developed, anthropogenic CO 2 - sourced pipelines for enhanced oil recovery ( CO 2 - EOR)

in North America during the last 20 years. These projects have successfully sequestered

carbon dioxide emissions that were previously vented into the atmosphere.

II. S pecific Comments on the Proposed Regulations

a. Background

Blue Source’s comments here are focused on a narrow, but critical, aspect of

EPA’s proposal

– namely, whether CO 2 - EOR operators should have the option of

participating in EPA’s forthcoming CCS regulat ory scheme. 1

1 We believe that adoption of our comments is a necessary component of ensuring that CO 2 - EOR flourishes as CCS, but other steps need to be taken, too. For example, we also believe that EPA needs to ensure that carbon dioxide is not regulated as a hazardous waste or substance under statutes such as RCRA and CERCLA during storage operations; in a future rulemaking EPA perhaps could do so by expanding current exemptions which apply to oil & gas operati ons to include “storage” operations.12012 Wickchester Lane, Suite 660 Houston, Texas 77079

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- 8481 The preamble to EPA’s proposal suggests that as long as production is occurring

and reservoirs are not depleted, Class II permitting provisions apply; only when a

reservoir is depleted may the new proposed Class VI CCS provisions apply. 2

The inadvertent impact of EPA’s proposal is to strand CO 2 - EOR by not giving it

the option of being included in CCS. This would be an unfortunate outcome for the

environment and CCS. According to a recent study by the U.S. Department of Energy

(DOE), CO 2 - EOR has the potential to provide a significant storage market for carbon

dioxide. Beca use

the grandfathering of the Class VI requirements is relatively narrow, we interpret EPA’s

proposal to mean that CO 2 - EOR operators (and others associated with such projects,

including industrial sources) effectively will be disqualified from participatin g in CCS.

This disqualification, in turn, suggests that: (i) capped industrial sources who intend to

use CO 2 - EOR as their means of compliance with likely forthcoming cap

- and

- trade

legislation will be deprived of the ability to do so, and (ii) uncapped in dustrial sources

under cap

- and

- trade legislation may be disqualified from seeking treatment as providers

of offsets to regulated sources.

3

The commercial aspects of CO 2 - EOR in helping to finance, fund, and build first

mover CCS infrastructure which, in turn, could be used by broader CCS operations

(including deep saline, for example) cannot be overlooked. DOE has estimated that CO 2 DOE estimates that the size of th is market is on the order of 7,500 million

metric tons of carbon dioxide between 2008 and 2030. CO 2 - EOR, in other words, is not

a niche in the battle to combat climate change; it instead is poised to play a critical role,

particularly in the early years o f the deployment of CCS technology.

2 See discussion in Preamble at 48

- 49.

3 See “Storing CO 2 With Enhanced Oil Recovery,” DOE/NETL

- 402/1312/02

- 0708, at 1 (Feb. 7, 2008) (available at http://www.netl.doe.gov/energy

- analyses/pubs/storing%20co2%20w%20eor_final.pdf ).12012 Wickchester Lane, Suite 660 Houston, Texas 77079

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- 8481 sales for EOR would support the “early market entry” of up to forty

- nine (one GW size)

installations of CCS technology in the coal

- fired utility sector alone. 4

Blue Source is concerned that these (and other) significant CO 2 - EOR benefits

could be squandered if EPA proceeds with its proposed tre atment of this proven

technology. Given that Europe

is looking at funding twelve demonstration CCS pro jects in the years ahead, we believe

that forty

- nine projects is a significant number of projects that could jump

- start CCS as a

climate mitigation solution.

Giving CO 2 - EOR operators the option of participating in storage would not

imperil drinking water a quifers as such assessments are already part of the Class II

approval process. Indeed, since CO 2 - EOR operations are by definition brownfields, not

greenfields, it might be expected that the risk profile of such projects

– in terms of

potential drinking wa ter impacts

– might be lower initially than other sites, although site

assessments would of course still need to be done.

5

b. Suggested Solution

Blue Source encourages EPA to provide CO 2 - EOR operators with the option of

participating in CCS. Such participating could take several forms. For example,

operators (and other project participants) co uld be given the right to “opt into” what

might be called an “EOR

- plus” regulatory option under the existing Class II well

program. The EOR

- plus regulatory option would of course be limited to anthropogenic

4 Id

. 5 A large volume of literature, which won’t be repeated here, documents the successful, safe and environmentally sound use of CO 2 - EOR through th e US for many decades. Moreover, a significant portion of US domestic oil production is the result of CO 2 - EOR: according to the 2006 EOR survey published by

the Oil & Gas Journal , approximately 237,000 barrels per day of incremental oil production is bei ng produced by eighty six CO 2 - EOR projects that are distributed broadly across the United States. CO 2 - EOR is not just about the Permian Basin, in other words.12012 Wickchester Lane, Suite 660 Houston, Texas 77079

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- 8481 CO 2 and might include the following additional r equirements: (i) up

- front suitability

assessment for storage operations, including an analysis of the reservoir’s risk profile and

an assessment of whether appropriate storage rights have been obtained (if necessary);

and (ii) measuring, monitoring and ve rification requirements.

This option could be selected by the operator at any time

– e.g., prior to, during,

or at the conclusion of a CO 2 - EOR flood.

This option also could be implemented by the primacy States under the existing

Class II program. This mak es sense because the States already have decades of

experience in regulating Class II; State regulators also possess the necessary geologic

data and expertise to ensure that CO 2 - EOR storage operations did not imperil

environmental end points of concern.

In lieu of a more formalistic EOR

- plus regulatory option, EPA could provide even

greater flexibility by indicating that CO 2 - EOR operations would have the ability, on a

case

- by

- case basis, to demonstrate that they were engaged in storage by meeting a

performa nce

- based storage and environmental standard, focused on drinking water

aquifers. Alternatively, the preamble to the final rule could provide that the rule’s

applicability was limited to deep saline, and that nothing in the rule was intended to

impact the ability of CO 2 - EOR to qualify as storage, but that this topic would be

addressed in a separate rulemaking, which EPA then would undertake expeditiously.

Finally, Blue Source is not proposing that any changes be made to the existing

Class II regulations, w hich would remain available for those operators who did not elect

to opt into the EOR

- plus regulatory (or comparable) scheme. Blue Source also is not12012 Wickchester Lane, Suite 660 Houston, Texas 77079

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- 8481 suggesting that business

- as

- usual CO 2 - EOR qualify as storage because we recognize that

existing Class II requirements fall short of what may be required to demonstrate storage.

Conclusion

Blue Source encourages EPA to provide CO 2 - EOR operators with the option of

participating in CCS because doing so would provide the most environmentally sensitive

method of jump

- starting CCS, a critical climate mitigation technology. Failure of EPA to

do so could stall the development, deployment and funding of critical CCS infrastructure

and lead to unnecessary further industrial emissions of carbon dioxide.

Thank you

Mich ael E. Moore

Vice President External Affairs

Blue SourceLetter ID: 0232

Commenter: Michael E. Moore Organization: Blue Source

Letter ID: 0232 Comment ID: 21896 Letter Lines: 63 to 77

Comment Code: 1630 1.3.3 RCRA/hazardous waste i ssues (seeking comment)

Comment Code: 1640 1.3.4 CERCLA issues (seeking comment)

Comment Code: 2046 1.5.2.3 Continuing to classify CO2 in jection for EOR/EGR as Class II/ dividing line between Class II and Class VI (seeking comment)

Comment: II. Specific Comments on the Proposed Regulations

a. Background

Blue Source’s comments here are focuse d on a narrow, but cri tical, aspect of EPA’s proposal - namely, whether CO2-EOR operators should have the option of participating in EPA’s forthcomi ng CCS regulatory scheme. [FN1]

[FN1: We believe that adoption of our commen ts is a necessary component of ensuring that CO2-EOR flourishes as CCS, but othe r steps need to be taken, too. For example, we also believe that EPA needs to ensure that carbo n dioxide is not regulated as a hazardous waste or substa nce under statutes such as RCRA and CERCLA during storage operations; in a futu re rulemaking EPA perhaps could do so by expanding current exemptions which appl y to oil & gas operations to include "storage" operations.]

Individual Response: EPA clarifies that the Class VI GS rule is designed to ensure the protection of USDWs from endangerment, and does not aim to promot e GS deployment.

EPA notes that the GS rule is not promulga ted under the RCRA or CERCLA statutes, and further, the applicab ility of those statutes will not be de termined under the SDWA or the terms of the GS rule, but rather according to those statutes themselves and any implementing regulations that may apply. EPA received many comments re garding the applicability of the RCRA regulations and statute to CO2 st reams that are geologically seque stered under the final Class VI UIC well requirements. As a result, EPA has deci ded to initiate a sepa rate proposed rulemaking specifically to examine the issue of RCRA appl icability to CO2 streams being geologically sequestered, including the possible option of a conditional exemption from the RCRA requirements for CO2 GS in Class VI wells. EPA will consider these comments as part of its development of that proposal. The Agency will consider issues pa rticular to RCRA in the context of that separate rulemaking, and recommends that the commenter read that proposed rule when it is published. The Agency notes that comment ers who wish to submit comments on the RCRA proposal will need to do so during the comment period for that rule.

EPA clarifies that CO2 itself is not listed as a hazardous s ubstance under CERCLA; however, the

1CO2 stream may contain a listed hazardous s ubstance (such as mercury) or may mobilize substances in the subsurface that could react with ground water to produce listed hazardous substances (such as sulfuric acid). Whether su ch substances may result in CERCLA liability from a sequestration facility depe nds entirely on the composition of the specific CO2 stream and

the environmental media in which it is stored (e.g., soil or ground water). CERCLA exempts from liability, under CERCLA section 107, 42 U. S.C. 9607, certain “federally permitted releases” (FPR) as defined in CERCLA, 42 U.S. C. 9601(10). Class VI permits will need to be carefully structured to ensure that they prevent potential releases from the well which are outside the scope of the Class VI permit.

The Agency acknowledges the commenter's concer ns regarding the scope and possible impacts of CERCLA liability on CCS activi ties, however EPA notes that the GS rule is not promulgated under CERCLA, therefore the appli cability of that statute will not be determined under the SDWA or the terms of the GS rule, but rather according to the CERCLA statute itself and any implementing regulations that may apply.

EPA adds that, if it develops regulations in the future, stakeholders will be provided opportunity for public comment.

Letter ID: 0232 Comment ID: 21897 Letter Lines: 79 to 187

Comment Code: 2046 1.5.2.3 Continuing to classify CO2 in jection for EOR/EGR as Class II/ dividing line between Class II and Class VI (seeking comment)

Comment Code: 2064 1.5.3.2 Grandfathering construction of Class II wells (seeking comment)

Comment: The preamble to EPA’s proposal suggests th at as long as production is occurring and reservoirs are not depleted, Class II permitting provisions apply; only when a reservoir is depleted may the new pr oposed Class VI CCS provisions apply. [FN2] Because the grandfathering of the Class VI requirement s is relatively narrow, we interpret EPA’s proposal to m ean that CO2-EOR operators (and others associated with such projects, includi ng industrial sources) effectively will be disqualified from participating in CCS. This disqualific ation, in turn, suggests that: (i) capped indus trial sources who intend to use CO2-EOR as their means of compliance with likely forthcom ing cap-and-trade legislation will be deprived of the ability to do so, and (ii) uncapped industr ial sources under cap-and-trade legislation may be dis qualified from seeking treatment as providers of offsets to regulated sources.

[FN2: See discussion in Preamble at 48-49.]

The inadvertent impact of EPA’s proposal is to strand CO2-EO R by not giving it the option of being included in CCS. This would be an unfort unate outcome for the environment and CCS. According to a recent study by the U.S. Department of Energy (DOE), CO2-EOR has the potential to provide a significant storage market for carbon dioxide. [FN3] DOE estimates that the size of this market is on the order of 7,500 million metric tons of carbon dioxide between 2008 and 2030.

2CO2-EOR, in other words, is not a niche in the battle to combat climate change; it instead is poised to play a critical ro le, particularly in the early years of the deployment of CCS technology.

The commercial aspects of CO2-EOR in help ing to finance, fund, and build firstmover CCS infrastructure which, in turn, could be used by broader CCS operations (including deep saline, for example) ca nnot be overlooked. DOE has estimated that CO2 sales for EOR would support the "e arly market entry" of up to fortynine (one GW size) installations of CCS technology in the coal-fired utility sector alone. [FN4 ] Given that Europe is l ooking at funding twelve demonstration CCS projects in the years ahead, we believe th at forty-nine projects is a significant nu mber of projects that could jump-start CCS as a climate mitigation solution.

[FN3: See "Storing CO2 With Enhanced Oil Recovery," DOE/NETL-402/1312/02-0708, at 1 (Feb. 7, 2008) (available at http://www.netl.doe.gov/energy-analyses/pubs /storing%20co2%20w%20eor_final.pdf) .] [FN4 Id.]

Giving CO2-EOR operators the option of participating in storage would not imperil drinking water aquifers as such assessments are already part of the Class II approval process. Indeed, sin ce CO2-EOR operations are by definition brownfields, not greenfields, it might be e xpected that the risk profile of such projects - in terms of potential drinking water impacts - might be lower initially than other sites, although site assessments would of course still need

to be done.

Blue Source is concerned that these (and other) significant CO2-EOR benefits could be squandered if EPA proceeds with its proposed treatment of this proven technology.[FN5]

[FN5: A large volume of literature, which won’t be repeated here, documents the successful, safe and environmentally s ound use of CO2-EOR through the US for many decades. Moreover, a significant porti on of US domestic oil production is the result of CO2-EOR: according to th e 2006 EOR survey published by the Oil & Gas Journal, approximately 237,000 barrels pe r day of incrementa l oil production is being produced by eighty six CO2-EOR projects that are di stributed broadly across the United States. CO2-EOR is not ju st about the Permia n Basin, in other words.]

b. Suggested Solution

Blue Source encourages EPA to provide CO2-EOR operators w ith the option of participating in CCS. Such participat ing could take several forms. For example, operators (and other project part icipants) could be given the right to

3"opt into" what might be called an "EOR-plus" regulatory option under the existing Class II well program. The EOR-pl us regulatory option would of course be limited to anthropogenic CO2 and might include the following additional requirements: (i) up-front suitability assessment for storage operations, including an analysis of the reservoir’s risk profile and an assessment of whether appropriate storage rights have been obtained (if necessary); and (ii) measuring, monitoring and ve rification requirements.

This option could be selected by the operator at any time - e.g., prior to, during, or at the conclusion of a CO2-EOR flood.

This option also could be implemented by the primacy States under the existing Class II program. This makes sense because the States already have decades of experience in regulating Class II; State re gulators also possess the necessary geologic data and expertise to ensure th at CO2-EOR storage operations did not imperil environmental end points of concern.

In lieu of a more formalistic EOR-plus regulatory option, EPA could provide even greater flexibility by indicating that CO2-EOR operations would have the ability, on a case-by-case basis, to dem onstrate that they were engaged in storage by meeting a performance-based storage and environmental standard, focused on drinking water aquifers. Altern atively, the preamble to the final rule could provide that the rule’s applicability was limited to deep saline, and that nothing in the rule was intended to impact the ability of CO2-EOR to qualify as storage, but that this topi c would be addressed in a separate rulemaking, which EPA then w ould undertake expeditiously.

Finally, Blue Source is not proposing that any changes be made to the existing Class II regulations, which would remain available for those operators who did not elect to opt into the EOR-plus re gulatory (or comparable) scheme. Blue Source also is not suggesti ng that business-as-usual CO 2-EOR qualify as storage because we recognize that existing Class II requirements fall short of what may be required to demonstrate storage.

Conclusion

Blue Source encourages EPA to provide CO2-EOR operators w ith the option of participating in CCS because doing so w ould provide the most environmentally sensitive method of jump-starting CCS, a critical climate mitigation technology.

Failure of EPA to do so could stall the development, deployment and funding of

critical CCS infrastructure and lead to unnecessary further industrial emissions

of carbon dioxide.

Individual Response: EPA recognizes that the oil and gas industry has decades of experience injecting CO2 for the purpose of ER, and that site s used for ER may be suitable for GS and may be among the first GS sites. However, the Agen cy believes that the na ture and risks of CO2

45 injection for the primary purpose of long term stor age poses different risks than injection for the primary purpose of ER, and theref ore has developed new Class VI regulations to address these unique risks. For example, the volume of CO2 anticip ated to be injected for long term storage is significantly greater than for ER operations. Reser voir pressure conditions will also be different, with Class VI injection opera tions involving large volumes of CO2 and likely having higher pressures within their storage formations than Class II ER projects, which may lead to fluid movement that endangers a USDW.

The final Class VI regulations re quire that any owner or operato r injecting CO2 for the primary purpose of long term storage obtain a Class VI pe rmit with some special consideration for the fact that they are transitioning from a well not or iginally designed to meet Class VI requirements. The Director has the authority to determine at wh at point a Class VI permit is required for those projects that are transitioning from the primar y purpose of EOR to long term storage of CO2. The final regulation provides a set of technical factors for the Direct or to evaluate in making this determination, at §144.19. EPA believes that this approach provides su fficient protection of

USDWs when there is an increased risk to USDWs as compared to traditi onal Class II operations while allowing for site-specific flexibility.

EPA is developing guidance on transitioning perm its from Class II to Class VI. The guidance will assist Directors in determining whether an injection project should be transitioned from Class II where the primary purpose is oil and gas production to Class VI where the primary purpose is long-term storage of large volumes of CO2. The guidance describes recommended methods the Director may use to evaluate change s in risk to USDWs from projects, and how the Director may determine whether a project should be regulated within th e Class II or Class VI UIC program. This guidance will be available on EPA’s website at http://water.epa.gov/type/groundwat er/uic/wells_sequest ration.cfm. For more information, please

see the discussion on transition of Class II well s in the preamble to the final GS rule.

EPA clarifies that the purpose of the GS rule is to ensu re protection of USDWs from endangerment and not to promote or incentivize GS deployment. However, the Agency believes that establishing a regulatory framework for the future development and deployment of CCS technology may provide the regulato ry and jurisdictional certainty needed to foster development and deployment of CCS while ensuring USDW protection.