v>EPA
United States
Environmental Protection
Agency
APPROACHES TO GEOLOGIC SEQUESTRATION SITE
STEWARDSHIP AFTER SITE CLOSURE
July 2008
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Office of Water (4604M)
EPA816-B-08-002
www.epa.gov/safewater
July 2008
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APPROACHES TO GEOLOGIC SEQUESTRATION SITE STEWARDSHIP AFTER
SITE CLOSURE
BACKGROUND
This paper describes stakeholder-developed models for site stewardship at geologic sequestration
(GS) sites, and summarizes examples of federal programs that may inform development of
alternative models for stewardship of GS after site closure.1
EPA's proposed rulemaking, Federal Requirements Under the Underground Injection Control
(UIC) Program for Carbon Dioxide (CO?) Geologic Sequestration (GS) Wells., describes a new
class of well and technical criteria for the geologic site characterization, fluid movement, area of
review (AoR) and corrective action, well construction, operation, mechanical integrity testing,
monitoring, well plugging, post-injection site care, and site closure to protect underground
sources of drinking water (USDWs). As part of this proposal, EPA lays out general
requirements for financial responsibility,2 and plans to clarify in guidance the types of financial
mechanisms that owners or operators can use to meet financial responsibility requirements for
new GS wells. The financial responsibility requirements would include provisions requiring
that owners and operators demonstrate and maintain financial responsibility during operation,
closure, and the post-injection site care period. This ensures that owners and operators have the
resources to carry out activities related to closing and remediating GS sites if needed during
injection or after wells are plugged, so that they do not endanger USDWs.
Issues, such as the long timeframes anticipated for CC>2 sequestration, the absence of provisions
in the Safe Drinking Water Act (SDWA) to allow transfer of liability to other government
1 For the purposes of this paper, "site closure" refers to the period of time after the end of the post-injection site care
phase of the GS project.
2 Financial responsibility (also referred to as financial assurance) programs represent a form of risk management.
The intent of financial responsibility is to ensure the safe closure and responsible post-site-closure monitoring of
regulated sites such as landfills, hazardous waste facilities, underground storage tanks, and oil and gas wells.
Specifically, financial responsibility regulations are designed to ensure that owners and operators maintain adequate
financial resources to fulfill their current and future environmental obligations, including closure, post-site-closure,
and as applicable, corrective action. In so doing, the intent of the financial responsibility standards is to minimize the
number of facilities that are orphaned and abandoned; thereby, reducing the potential that these costs will be borne
by the public.
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entities, and the requirement under SDWA that the responsibility for potential impacts to
USDWs all have resulted in stakeholder requests for a discussion of alternative approaches to
liability for GS sites. In addition, owners and operators may need to address liability related to
potential impacts to air, ecosystems, and human health beyond the scope of the SDWA. These
considerations, and the fact that the GS storage timeframe may exceed the lifetime of a typical
owner or operator of a GS site, have led to requests that EPA provide information on site
stewardship after site closure as part of its proposed rulemaking for GS wells.
Accordingly, EPA has developed this paper to provide additional information on approaches to
stewardship of carbon dioxide GS sites after site closure. Since the SDWA does not explicitly
provide EPA the authority to transfer liability from the owner/operator to another entity, this
paper is for informational purposes only.
INTRODUCTION
GS is considered a key climate change mitigation technology. The Intergovernmental Panel on
Climate Change (IPCC) concluded that GS could be an effective way to achieve significant
greenhouse gas emission reductions.3'4 As shown in the schematic below, GS involves capturing
CC>2 generated from fossil fuel combustion or industrial processes, injecting it deep underground,
and permanently sequestering the CC>2 in deep geologic formations. At this time there are a
small number of commercial-scale GS operations (all outside the US), injecting several million
tonnes of CC>2 annually. However, the number of projects throughout the world, both pilot and
commercial-scale, has the potential to expand.
3 Intergovernmental Panel on Climate Change (IPCC). 2005. Special Report on Carbon Dioxide Capture and
Storage. Prepared by Working Group III of the Intergovernmental Panel on Climate Change [Metz, B., O. Davidson,
H. de Coninck, M. Loos, and L. Meyer (eds.)]. Cambridge University Press, Cambridge, United Kingdom and New
York, NY, USA.
4 Intergovernmental Panel on Climate Change (IPCC). 2007. Climate Change 2007, Synthesis Report.
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Schematic diagram of possible CCS systems
GS can be a safe technology when conducted in accordance with regulations to ensure the
protection of human health and the environment.5 Underground injection of fluids, including
CC>2, is regulated under the authority of Part C of the Safe Drinking Water Act. The SDWA
protects the quality of USDWs in the U.S. and requires that minimum requirements be set to
prevent underground injection which endangers drinking water sources. EPA Regions and State
Programs take responsibility for implementing Underground Injection Control Regulations and
states must adopt requirements that are at least as stringent as the federal requirements. When
finalized, EPA's proposed regulations will ensure that GS does not endanger USDWs.
One aspect of federal regulations protecting USDWs is the provision for financial responsibility.
EPA's proposal for managing underground injection of CC>2 would require that owners or
operators demonstrate and maintain financial responsibility and have the resources for activities
related to remediating and closing GS sites.
5 Ibid.
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The financial assurance obligation would end at the end of post injection site care period (i.e.,
when the owner/operator submits a post-injection site care plan, and the Director determines that
the site does not pose a danger to USDWs based on a demonstration using a combination of
monitoring and modeling data). Although obligation for financial responsibility would end for
the owner/operator after the state or EPA Region has approved the post-injection site care and
site closure plan, owners and operators may still be responsible after site closure (e.g., for
unanticipated migration that endangers a USDW).
Stewardship after site closure can include activities ranging from monitoring the site after site
closure, detecting unanticipated movement of fluids, and taking action to protect USDWs if the
unanticipated movement endangers USDWs. While not covered by the SDWA impacts to air,
ecosystems, and human health may also be considered part of stewardship activities, depending
on the model.
The Agency has not made a determination as to whether the solutions in the models and federal
programs described in this paper are appropriate for GS wells, and does not intend to specify
which models or programs may be applied to GS wells. Although stakeholder discussion
typically focuses on issues such as liability and federally-backed indemnification approaches, in
describing these models, the Agency does not make an endorsement. However, EPA provides
them because they may contain important concepts that may become useful in developing an
approach to post-site-closure stewardship in the future. In addition, EPA recognizes that states
and other stakeholders can play a key role in the design and implementation of approaches to
addressing site stewardship after site closure and that a number of states are considering or have
passed legislation to address GS post-site-closure stewardship.
As noted above, this paper was prepared to provide a preliminary overview of important
considerations related to provision of post-site-closure site stewardship. Although the paper
discusses a number of existing laws and regulations, it does not change or replace any legal
requirement, and is not legally enforceable. To the extent that legal terms and concepts are
discussed or defined, this paper only does so for context. The use and description of such terms
is not intended to provide legally binding norms or standards or to supplant the meaning those
terms may have under various statutes or regulations. The use of non-mandatory words like
"should," "could," "would," "may," "might," "encourage," "expect," and "can," in this
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document means solely that something is suggested or recommended, and not that it is legally
required, or that the suggestion or recommendation imposes legally binding requirements.
Mention of trade names or commercial products does not constitute endorsement or
recommendation for use.
OVERVIEW OF STAKEHOLDER-DEVELOPED GS STEWARDSHIP MODELS AND
FEDERAL MECHANISMS
Stakeholder-Developed Models for GS Site Stewardship and Federal Mechanisms
EPA gathered information about the stakeholder models and federal mechanisms below from a
variety of stakeholders including the Interstate Oil and Gas Compact Commission, the
International Risk Governance Council, World Resources International; and federal sources.
The models and approaches include components which are not currently available under SDWA.
As discussed earlier, EPA has not determined whether any of the stakeholder-developed models
and federal approaches are appropriate for GS wells, but believes that they may provide a useful
starting place for considering approaches to providing stewardship if needed after GS sites
closure.
Stakeholder-Developed Models. Some independent organizations interested in alternatives for
post injection site care and closure have developed their own approaches to GS site stewardship.
These include:
i. Interstate Oil & Gas Compact Commission (IOGCC)
ii. World Resources Institute (WRI)
iii. International Risk Governance Council (IRGC)
Federal Mechanisms. Congress has provided varying mechanisms which, respond to needs in
areas other than GS, but may provide useful information in considering approaches to
stewardship for GS sites after site closure:
i. Price-Anderson Nuclear Industries Indemnity Act of 1957
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ii. Support Anti-Terrorism by Fostering Effective Technologies Act of 2002
iii. National Flood Insurance Act of 1968
iv. Trans-Alaska Pipeline Authorization Act of 1973 / Oil Pollution Act of
1990
v. Comprehensive Environmental Response, Compensation, and Liability
Act of 1980
Stakeholder-Developed Models
i. Interstate Oil and Gas Compact Commission6
Objective of Model. A state or a state-contracted entity would engage in monitoring and
remediation activities necessary to ensure the security of the storage site, using resources
from an industry-funded, state-administered trust fund. However, the model proposed by
the IOGCC is silent on the how to address potential loss or injury that may result from an
adverse occurrence at a GS site.
Post-site-closure Stewardship Approach. State-administered compensation fund based
on existing models developed by the states for addressing abandoned and orphaned oil
and gas wells. IOGCC concluded that states are "likely to be best positioned to provide
the necessary 'cradle to grave' regulatory oversight of geologic storage of CO2."
Policy Considerations:
1. Funding Mechanism. A trust fund would be funded by an injection fee (to be
determined). This fee would be assessed to the site operator at the point of custody
transfer of the CO2 from the generator to the operator and calculated on a per-ton
basis. The model proposed by the IOGCC does not address the varying degree of risk
that may exist across GS sites. Others have suggested that contributions to
6 The Interstate Oil and Gas Compact Commission. 2007. A Legal and Regulatory Guide for States and Provinces.
Task Force on Carbon Capture and Storage, IOGCC, September 25, 2007.
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mechanisms such as trust funds for post-site-closure stewardship could be made when
the site is operating, to better match the timing of costs and benefits.
2. Fund Administration. The IOGCC model does not address state jurisdiction for GS
sites that cross state boundaries.
3. Nature of risk. Not explicitly addressed.
4. Degree of Financial Responsibility. After site closure (as defined), the liability for
ensuring that the site remains a secure storage site during the post-site-closure period
would transfer to the state.
5. Fosters Project Development. Not explicitly addressed.
ii. World Resources Institute Issue Brief: Liability and Financial Responsibility Frameworks
for Carbon Capture and Sequestration7
Objective of Model. Ensure that adequate funds for post-site-closure stewardship are
readily accessible, if and when needed; avoid imposing excessive barriers to projects that
have public benefits; and ensure that risks are borne by those who share in the benefit of
GS.
Liability Model. Considers two options: (1) federal indemnity and (2) hybrid approach.
Policy Considerations:
7 Wilson, E.J., M.A. De Figueiredo, C. Trabucchi, and K. Larsen. 2007. Liability and Financial Responsibility
Frameworks for Carbon Capture and Sequestration. In World Resource Institute: WRI Issue Brief Carbon Capture
and Sequestration, No. 3.
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1. Funding Mechanism. A federal indemnity program, which may be "limited to a
discrete set of pilot projects designed to test the parameters and scope of CCS
technology, and limited only to discrete risks...."
2. Fund Administration. Not Addressed
3. Nature of risk. Assumes risks continue to diminish after site closure.
4. Degree of Financial Responsibility. Under a performance-based standard of
liability transfer, the project owner, operator or developer could be required to re-assume
financial responsibility (and attendant liability) if the GS site fails to maintain prescribed
standards at set monitoring periods over time. While the WRI issue paper acknowledges
the importance of fostering CCS technologies, the authors caution that "an indemnity
program for CCS projects should clearly articulate limits of liability and be accurately
priced - the public should not be asked to unnecessarily subsidize private development
and implementation of CCS technologies indefinitely." The WRI issue brief suggests that
the transfer of post-site-closure responsibility could be performance-based (when site
performance achieves certain predetermined metrics) or prescriptive (for example, a
certain number of years after site closure).
5. Fosters Project Development. WRI suggests this objective may be best met by
different approaches as the technology matures.
iii. International Risk Governance Council (IRGC)8
The International Risk Governance Council prepared an issue brief that focuses on all
aspects of regulation for carbon capture and storage (CCS). While the report does not
present a model for post-site-closure stewardship of GS sites, it includes a number of
concepts intended to inform discussion of the design of such models.
8 International Risk Governance Council. 2008. Regulation of Carbon Capture and Storage, Policy Brief for
International Risk Governance Council.
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The authors frame the general discussion of CCS regulation with a number of principles
relevant to GS site stewardship:
o Regulations should encourage responsible operation and investment, balance
stability and predictability with flexibility and adaptability to new scientific
information, be based on solid technical findings and provide ease of
implementation for both regulators and industry. In addition, it is important to
equitably balance the risks of CCS between public and private actors.
o Regulations should balance the needs of all stakeholders through the project
cycle, including:
_ the public-including concerns associated with climate change and
economic competitiveness, including the cost of electricity
_ site developers, who need an approach that is both legal and profitable
_ climate regime administrators
_ insurers—the ability of insurers and reinsurers to assess risk will depend on
which activities they are asked to cover and the limits on liability (if any)
provided under national, state, or provincial law
_ financial underwriting companies, which will require that CCS be
profitable, and will require clarification of ownership and responsibility
for injected CC>2, among other matters.
Responsibility after site closure. The IRGC recommendations assume that "[p]ublic
assumption of long-term responsibility will probably be required at some point after site
closure, conditional upon proof that CC>2 storage is behaving predictably, as nations are
the only entities that can make credible commitments over such long storage time
periods." Special arrangements for post-site-closure stewardship may also be considered
for a limited number of demonstration projects. The report also suggests that if public
assumption of long-term responsibility does occur, regulations would need to specify the
technical requirements both to qualify for ownership transfer and for when the transfer
may take place.
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Locating regulatory responsibility. The report suggests that it is not clear whether the
same regulatory entity that is responsible for permitting through site closure should also
assume long-term oversight responsibility, noting that industry would prefer the
continuity of a single regulator but that a separate regulatory entity would be more
objective in assessing whether to accept transfer of liability to the public.
Slow long-term leakage. IRGC suggests that in the event such leakage were to occur, it
would create liabilities within a climate regime even if it presents no health or local
environmental hazard, and that policymakers will need to provide technically grounded
guidance on acceptable levels of CC>2 leakage from storage, and on definitions of leakage.
Post-site-closure stewardship expenses. IRGC proposes that expenses for long-term
care of CCS sites must be funded during site operations, which could be accomplished
through operator payments into a national stewardship sinking fund, and that such a risk-
pooling approach may be most efficient. Alternatively, an operator could pay into a
dedicated fund for each site although the report notes that if each site must accumulate
enough money to cover a worst-case remediation scenario such an approach would be
unnecessarily expensive. The discussion concludes with the observation that "linking
funding of long-term CCS liabilities to the industries that generate CC>2 will allow cost
internalization by industry. Additionally, it is wise for industry as a whole to maintain
responsibility, because of inevitable information asymmetries: even with high levels of
transparency, industry will know more about CCS than regulators."
Industry credibility. "Efforts to secure public assumption of long-term liability must
take care to avoid damaging the industry's credibility. Arguments to transfer
responsibility from project operators to the government too quickly, too completely, or
without adequately funding post-transfer care, run the risk of undermining public
acceptance."
Insurance industry. The report observes that insurance companies could play an
important role in structuring the financial mechanisms to cover potential post-site-closure
liabilities.
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Federal Approaches to Liability
i. Price-Anderson Nuclear Industries Indemnity Act of 19579
Program Objective. The Price-Anderson Act was enacted in 195710 to achieve two
objectives: (1) to ensure that adequate funds would be available to satisfy liability claims
of members of the public for personal injury or property damage in the event of a
catastrophic nuclear accident; and (2) to help encourage private investment in
commercial nuclear power by placing a cap, or ceiling on the total amount of liability
each holder of a nuclear power plant license faced in the event of a catastrophic accident.
Over the years, the "limit of liability" for a catastrophic nuclear accident has increased
the insurance pool to over $10 billion.11
Liability Model. Indemnification and limitation of liability12 model that includes (1)
site-specific private insurance, (2) industry-wide pooled insurance and (3) federal
indemnity.
Policy Considerations:
1. Funding Mechanism. Three-tiered coverage system, which requires licensed
nuclear facilities to maintain both site-specific liability insurance (Tier 1) and
industry-pooled liability insurance (Tier 2). In the event that the private claims
against a licensee exceed the amounts available in both the site-specific, individual
insurance and the industry-pooled insurance, the federal government (Tier 3) provides
the licensee with indemnity. Specifically:13
942U.S.C. Sec. 2210
10 The Energy Policy Act of 2005 extended the Price-Anderson Act to December 31, 2025.
11 U.S. Nuclear Regulatory Commission. Fact Sheet on Nuclear Insurance and Disaster Relief Funds. Retrieved on
June 8, 2008. Available online at: http://www.nrc.gov/reading-rm/doc-collections/fact-sheets/funds-fs.html
1210C.F.R. § 140.l(a)
13 10C.F.R. § 140.11
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X Tier 1 (individual financing) requires the individual nuclear plant to obtain
primary insurance coverage up to a mandated level (currently $300 million14)
from private sources.15 Demonstration can be in the form of private insurance,
self-insurance or other proof of financial responsibility.
X Tier 2 (pooled-industry insurance) requires payment of 'retrospective premiums'
of $15 million per year up to a maximum of $95.8 million16 per incident for each
of its plants, in the event that claims exceed the amount of Tier 1 financing.17
Licensees are required to maintain one of six types of guarantees for payment of
retrospective premiums (e.g. surety bonds).
X Tier 3 (federal indemnity) indemnifies licensees from liability arising from
nuclear incidents, once the individual and industry caps are reached.
18
All claims filed to date under the Price-Anderson model have been covered through the
individual financing under Tier 1.
14 Regulations are periodically revised to require licensees to increase their coverage level as the private insurance
market increases the maximum level of primary insurance that it is willing to offer. For example, the required
coverage was increased from $200 million to $300 million in January 2003. (GAO report to Congressional
Requesters GAO-04-654. Nuclear Regulation: NRC's Liability Insurance Requirements for Nuclear Power Plants
Owned by Limited Liability Companies, May 2004.)
15 Insurance is provided by American Nuclear Insurers, the joint underwriting association that provides insurance for
U.S. nuclear power plants.
16 These amounts were increased to these levels by the Energy Policy Act of 2005, which also requires periodic
inflation adjustments (at least every five years).
17 Retrospective premiums are collected by American Nuclear Insurers. If a licensee did not pay its share of these
premiums, American Nuclear Insurers would, under its agreement with the licensees, pay up to $30 million of the
premiums in one year and attempt to collect this amount later from the licensees (U.S. General Accountability
Office (GAO). 2004. Nuclear Regulation: NRC's Liability Insurance Requirements for Nuclear Power Plants
Owned by Limited Liability Companies. Report to Congressional Requesters. May 2004.)
18 "The Price-Anderson Act also provides a process to deal with incidents in which the damages exceed the primary
and secondary insurance coverage. Under the act, NRC shall survey the causes and extent of the damage and submit
a report on the results to, among others, the Congress and the courts. The courts must determine whether public
liability exceeds the liability limits available in the primary insurance and secondary retrospective premiums. Then
the President would submit to the Congress an estimate of the financial extent of damages, recommendations for
additional sources of funds, and one or more compensation plans for full and prompt compensation for all valid
claims. In addition, NRC can request the Congress to appropriate funds." See U.S. General Accountability Office
(GAO). 2004. Nuclear Regulation: NRC's Liability Insurance Requirements for Nuclear Power Plants Owned by
Limited Liability Companies. May 2004.
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2. Fund Administration. Funds are readily accessible and distributed under individual
and collective insurance policies established under Tier 1 and Tier 2.
3. Nature of risk. Nuclear power is characterized by a low probability of risk, but
potential catastrophic loss or injury. The Price-Anderson Act provides financial
protection during the operating life of a nuclear facility.
4. Degree of Financial Responsibility. Plant operators maintain insurance and
guarantees with a combined value of over $10 billion.
19
5. Fosters Project Development. Currently 104 nuclear facilities are licensed to
operate in the U.S.20
Support Anti-Terrorism by Fostering Effective Technologies Act of 200221
Program Objective. The Support Anti-Terrorism by Fostering Effective Technologies
Act (SAFETY) was enacted in 2002, to provide critical incentives for the development
and deployment of anti-terrorism technologies by providing liability protections for
providers of "qualified anti-terrorism technologies."22
19 U.S. Nuclear Regulatory Commission. Fact Sheet on Nuclear Insurance and Disaster Relief Funds. Retrieved on
June 8, 2008. Available online at: http://www.nrc.gov/reading-rm/doc-collections/fact-sheets/funds-fs.html. Last
updated on February 22, 2008. Retrieved on June 20, 2008.
20 Price-Anderson Act, 42 USC 2011 et seq., Section 2131. Number of licensed operating nuclear facilities obtained
from the NRC. Accessed at: http://www.nrc.gov/info-finder/reactor. Last updated on February 14,2008. Retrieved
on June 20, 2008.
21 Regulations Implementing the Support Anti-Terrorism by Fostering Effective Technologies Act of 2002. Final
rule. June 8, 2006. 6CFR25. Publishedin?! FR, No. 110, page 33147 etseq. June 8, 2006.
22 Ibid.
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Liability Model.
X Exclusive jurisdiction in federal court for suits against sellers of "Qualified Anti-
Terrorism Technology" (QATT).
X A limitation on the liability of sellers of QATT to a specified amount of liability
insurance coverage for each QATT, provided that sellers cannot be required to
obtain any more liability insurance coverage than is reasonably available "at
prices and terms that will not unreasonably distort the sales price" of the
technology. Beyond that limit of liability, indemnity is provided for claims
arising out of, relating to, or resulting from an act of terrorism, where QATT has
been deployed. Indemnity is fully transferable; that is, the Seller can transfer
indemnity to entities that have the right to manufacture, use, or sell QATT. The
length of indemnity is capped between five and eight years, as determined by the
Under Secretary.23
X A prohibition on joint and several liability such that sellers can only be liable for
the percentage of non-economic damages that is proportionate to their
responsibility, along with other liability limitations.
Policy Considerations:
1. Funding Mechanism. Insurance premiums paid by sellers of QATT, subject to
limitations described above.
2. Fund Administration. Funds are available up to the liability limits of the individual
policies maintained by sellers of QATT, which vary depending on the product-
specific level of coverage mandated by the Homeland Security Secretary.
23 A Designation shall be valid and effective for a term of five to eight years (as determined by the Under Secretary)
commencing on the date of issuance, and the protections conferred by the Designation shall continue in full force
and effect indefinitely to all sales of Qualified Anti-Terrorism Technologies covered by the Designation. At any
time within two years prior to the expiration of the term of the Designation, the Seller may apply for renewal of the
Designation.
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3. Nature of risk. The risks under SAFETY are characterized by a low probability of
occurrence, but potentially high magnitude of damages. The probability of risk under
SAFETY is dependent on the likelihood of largely unpredictable, catastrophic events
(e.g., a terrorist attack). The magnitude of damages may be a function of factors such
as design, manufacturing, and testing, among other factors.
4. Degree of Financial Responsibility. Under SAFETY, the insurer bears financial
responsibility for claims made up to the limit of liability of the sellers' insurance
coverage. Because information on claims made against insurance policies required
under SAFETY is not publicly available, it is unclear how insurance policy limits
compare to the magnitude of claims.
5. Fosters Project Development. Under SAFETY, the Department of Homeland
Security approved the 200th Qualified Anti-Terrorism Technology on February 21,
2008.
iii. National Flood Insurance Act of 1968
Program Objective. The National Flood Insurance Act (NFIA) was enacted in 1968.
The objective of the NFIA is to:24
X More effectively indemnify individuals for flood losses through insurance;
X Reduce future flood damage through State and community floodplain
management regulations; and
X Reduce federal expenditures for disaster assistance and flood control.
iy iviouei. rooieu insurance
O£
statute.
Liability Model. Pooled insurance model. Insurance coverage is capped by the
26
24 National Flood Insurance Act of 1968, 42 USC 4001 et seq., Section 4001(a) and (c).
25 National Flood Insurance Act of 1968, 42 USC 4001 et seq., Section 401 l(c).
26 National Flood Insurance Act of 1968, 42 USC 4001 et seq., Section 4016(a).
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Policy Considerations:
1. Funding Mechanism. Insurers issue insurance policies for flood coverage to eligible
property owners. Premiums collected under these policies are deposited into the
National Flood Insurance Fund. Any claims made under these policies (as well as
any administrative costs) are paid from the Fund. 27
In addition to funds collected from premiums, NFIP has the authority to borrow funds
from the US Treasury to cover potential shortfalls in the Fund. Borrowed funds must
be repaid with interest.28
2. Fund Administration. Funds are distributed in response to eligible claims made
under the insurance policies.
3. Nature of Risk. For the National Flood Insurance Program the probability of risk
(i.e., the probability of flood damage) varies depending on the magnitude of the
naturally occurring weather event. Moreover, the extent of damage varies depending
on the risk mitigation strategies undertaken by municipalities, states and homeowners.
Similarities exist between the nature of risks covered by NFIA and GS. For example,
management practices would be expected to minimize the probability, number, and
severity of claims made against the National Flood Insurance Fund.
4. Degree of Financial Responsibility. Private sector insurers pay claims using funds
generated from premium payments. In specific cases, the federal government
subsidizes the insurance premiums.29 For a number of reasons, primarily claims
experience that is very different than predicted when premiums were established,
27 National Flood Insurance Act of 1968, 42 USC 4001 et seq., Sections 4016 and 4017.
28 Ibid.
29 Ibid.
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claims have substantially exceeded premium income. As of August 2007 over $17.5
billion was owed to the U.S. Treasury by the NFIP.30
5 Fosters Project Development Not applicable
iv. Trans-Alaska Pipeline Authorization Act of 1973 / Oil Pollution Act of 1990
Program Objective. The Trans-Alaska Pipeline Authorization Act (TAPAA) of 1973
authorized the development and construction of a major pipeline in order to facilitate
delivery of oil from the Alaska's North Slope to domestic markets. The TAPAA states
"early development and delivery of oil and gas from Alaska's North Slope to domestic
markets is in the national interest because of growing domestic shortages and increasing
dependence upon insecure foreign sources."31 TAPAA established a long-term liability
and financial responsibility model. In August 1990, Congress passed the Oil Pollution
Act (OPA), which generally consolidated the liability and compensation schemes of the
TAPAA and other federal oil pollution laws and authorized the use of the Oil Spill
Liability Trust Fund, which consolidated the funds supporting the TAPAA and other
federal oil pollution laws.32
Liability Model. A responsible party's liability for removal costs and damages is
limited, unless the incident is caused by gross negligence or willful misconduct or is the
result of violation of an applicable federal regulation. Liability limits related to oil spills
were established for holders of the pipeline right of way or permits. Liability limits for
vessel owners are based on a formula that considers the vessel type and tonnage.
Liability limits for onshore facilities, offshore facilities, and deepwater ports are set at
established amounts.33 If a responsible party pays or incurs removal (e.g. oil spill
30 U.S. General Accountability Office (GAO). "Federal Emergency Management Agency: Ongoing Challenges
Facing the National Flood Insurance Program." GAO-08-118T, October 2007.
3143U.S.C. §1651.
32 US Department of Interior, http://www.gomr.mms.gov/homepg/regulate/regs/laws/osltf.html. Last updated on
January 11, 2000. Retrieved on June 20, 2008.
33 The OPA requires the President to adjust the limits of liability by regulation to reflect 'significant' increases in the
Consumer Price Index not less than every 3 years. These limits have not been adjusted as of June 2008.
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cleanup) costs or damages in excess of an applicable liability limit, the responsible party
may present a claim to the OSLTF for compensation of the excess amount.34
Expenditures from the Fund for any one oil pollution incident are limited to $1 billion or
the balance of the Fund, whichever is less. Natural resource damage assessments and
claims in connection with any one incident are limited to $500 million of the $1 billion
per incident limit.35 Limitations on liability were modified by the OP A.
To better address funding needs, the OSLTF has been subdivided into an Emergency
Fund and a Main Fund. The Emergency Fund ensures rapid and effective response to oil
spills without requiring further Congressional appropriations. Through this portion of the
OSLTF, up to $50 million is provided each year to fund removal activities and to initiate
natural resource damage assessments. Money available in the Emergency Fund also
includes a carryover from prior years.
Policy Considerations:
1. Funding Mechanism. The OSLTF receives funds from four primary sources: (1) an
oil tax (five cents a barrel on domestically produced or imported oil collected from
the oil industry; this is suspended when the fund reaches $1 billion but may be
reinstated by Congress if the fund falls below this amount); (2) interest on fund
principal; (3) cost recovery from responsible parties; and (4) penalties (to include
civil penalties assessed to the responsible parties).
OSTLF has the authority to borrow funds from the U.S. Treasury to cover potential
shortfalls in the Fund. In 2005, the Energy Policy Act of 2005 increased the
borrowing limit of the OSTLF to $2.7 billion.36 At the same time, a five-cents per
34 US Department of Homeland Security, United States Coast Guard. Report on Implementation of the Oil Pollution
Act of 1990. 2005.
35 US Coast Guard, National Pollution Funds Center, Oil Pollution Act Frequently Asked Questions
http://www.uscg.mil/npfc/About_NPFC/opa_faqs.asp#faq5. Last updated on May 21, 2008. Retrieved on June 20,
2008.
36 Energy Policy Act of 2005, P.L. 109-58, August 8, 2005, Section 1361. Dollar estimates are as referenced in the
statutory language, and unless otherwise noted have not been inflated to current year's dollars.
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barrel tax was reinstated with a cap on the collection of fees once the fund maximum
is reached (the balance of OSLTF is mandated to be between $2 billion and $2.7
billion).37 If funds accumulated in the OTSLF fall below $2 billion, collection of per-
barrel tax resumes.
2. Fund Administration. Federal On-Scene Coordinators can access OSTLF funds up
to an established amount for immediate removal, mitigation, or prevention of a
discharge. States also can be reimbursed by the OSTLF for removal and monitoring
costs incurred during oil spill response and cleanup efforts.
3. Nature of Risk. The liability model established by the TAPAA, and later revised by
the OP A, provides financial protection during the active use of the Trans-Alaska
Pipeline by owners and operators. Similarities exist between the nature of risks
covered by OPA and GS. For example, operating decisions made by pipeline owners
and operators will affect the likelihood, magnitude, and timing of claims made against
the OSTLF.
4. Degree of Financial Responsibility. Under the TAPAA/OPA, the private sector
retains financial responsibility for claims made up to the established limits of liability.
Pipeline right-of-way or permit holders, offshore facilities, vessels, and deepwater
ports are required to maintain evidence of financial responsibility. Claims for
removal costs and damages may be asserted directly against the guarantor providing
evidence of financial responsibility.38
5. Fosters Project Development. Over 15 billion barrels of oil have been transported
through the pipeline since construction completion in 1977.
39
37 Ibid.
38 33 U.S.C. § 2716(f)(l).
39 Alyeska Pipeline. Pipeline Facts. Last Updated on May 9, 2008. Retrieved on June 10, 2008. Available online
at: http://www.alyeska-pipe.com/pipelinefacts.html
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v. Comprehensive Environmental Response, Compensation, and Liability Act of 198040
Program Objective. The Comprehensive Environmental Response, Compensation, and
Liability Act (CERCLA), commonly known as Superfund, was enacted by Congress on
December 11, 1980. This law created a tax on the chemical and petroleum industries and
provided broad Federal authority to respond directly to releases or threatened releases of
hazardous substances that may endanger public health or the environment.41
Liability Model. Compensation fund42 model. The statute also imposes joint, strict and
several43 liability on potentially responsible parties (PRPs).44 Responsible parties are
liable for damage to injured natural resources. CERCLA also provides indemnity to
remediation contractors working at Superfund sites.
Policy Considerations:
1. Funding Mechanism. The Superfund compensation trust fund is financed through
several means:
X The Superfund tax levied on industry. The tax included: a petroleum excise tax, a
chemical feedstock tax, and a corporate environmental tax (CEIT).45 The taxing
authority expired in 1995. Over five years, $1.6 billion was collected.46
X Costs recovered on behalf of the Superfund under CERCLA, as well as interest,
fines, penalties and punitive damages assessed under CERCLA.47
40 CERCLA, 42 USC 9601 et seq., Section 111.
41 US EPA, CERCLA Overview. Available online at: http://www.epa.gov/superfund/policy/cercla.htm. Last
updated on July 17, 2007. Retrieved on June 20, 2007.
42 See Internal Revenue Code, 26 USC 1 et seq., Section 9507.
43 Strict liability is a doctrine under which entities remain responsible for damages caused by their actions or
products, regardless of any "fault" on their part. Under joint and several liability, each PRP is potentially liable for
the whole cost of cleanup no matter how much of the total contamination is directly a result of their activities.
44 CERCLA, 42 USC 9601 et seq., Section 107.
45 Internal Revenue Code, 26 USC 1 et seq., Sections 59A, 4611, 4661, 4671.
46 US EPA, CERCLA Overview.
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X Appropriations from the US Treasury.48
Cleanups are also funded by PRPs, who have made commitments since program
inception in excess of $20 billion.49
2. Fund Administration. Funds are disbursed from Superfund under the terms of
Section 111 of the Act to pay for cleanups and related program activities, primarily
based on eligibility criteria which target the most seriously contaminated sites. In
2002, EPA requested creation of a Superfund Subcommittee, under the auspices of
the National Advisory Council for Environmental Policy and Technology (NACEPT),
to provide guidance on program progress criteria, among other issues.50 EPA also
implemented new Superfund environmental indicators concurrent with the NACEPT
process.
3. Nature of risk. The Superfund trust fund was designed to consider the risk that
project owners, operators, and developers may no longer exist at the time a liability
occurs. In addition CERCLA supposes that risks to human health and the
environment can be reduced through sound operating decisions by site owners,
operators and developers. The magnitude of damages varies widely under CERCLA,
depending on the nature and the extent of the hazardous release.
4. Degree of Financial Responsibility. Through the Superfund tax levied on industry,
the private sector contributed approximately $6.3 billion in taxes to the fund between
47 Internal Revenue Code, 26 USC et seq., Section 9507.
48 U.S. General Accountability Office (GAO). 2003. Superfund Program: Current Status and Future Fiscal
Challenges. Report to the Chairman, Subcommittee on Oversight of Government Management, the Federal
Workforce, and the District of Columbia, Committee on Governmental Affairs, U.S. Senate. July 2003.
49
Ibid., p 38, letter from EPA.
50 Ibid.
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1993 and 2002.51 When a past owner or operator of a site is identified, it retains
liability for the site under Section 107 of the Act.52
5. Fosters Project Development. Not Applicable.
51 GAO, 2003. Amount is in 2002 dollars.
52 CERCLA, 42 USC 9601 et seq., Section 107.
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Characteristics of Stewardship Approaches
In considering alternative approaches to stewardship, several characteristics are likely to be key
components of any stewardship approach. Many of these characteristics are apparent in the
models discussed earlier in this paper. These include 1) funds that are available in appropriate
amounts, 2) funds that the responsible party can collect, manage, and disburse, 3) fund values
that are tailored to the risk of the project, 4) appropriate owner/operator incentive to reduce risk,
and 5) absence of barriers that could deter beneficial projects. This section briefly summarizes
several key components of stewardship approaches, and describes how they may be relevant for
GS.
1. Available funding: Because GS for long-term storage is a new practice, it may be difficult
to estimate the appropriate amount of funds that may be required at either an individual site or
collectively at all sites. A primary challenge for post-site-closure stewardship is ensuring
adequate funds are available if needed. It is equally important to avoid collecting excessive
funds, which would be economically inefficient. Potential GS approaches may need to consider
site-specific issues which may influence funding needs such as geologic characteristics, site
design, management practices, and the nature of nearby human populations and ecosystems.
2 Administrative ability to collect, manage and disburse dedicated funds: Federal
and/or state entities must be able to readily access the funds in the amounts and timing necessary.
Many states and federal agencies do not have the authority to collect, manage and disburse
dedicated (i.e., earmarked) funds. For example, funds received by a state typically are deposited
into a state's general fund, and the amount of funds that a state legislature appropriates for the
purpose may not match the funds required to pay for costs associated with site stewardship. In
such cases, legislation establishing a dedicated fund or similar arrangement may be necessary.
3 Approach appropriate to risk of GS project: Risks associated with GS sites after site
closure will likely decline over time and the possibility of an adverse occurrence will likely
increase as the number of sites grows. An approach for addressing post-site-closure stewardship
for GS may be designed to address risks of this nature.
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4 Approach should ensure that owners and operators bear appropriate responsibility
for the financial consequences of site selection, design, and operational decisions: An
approach for addressing post-site-closure stewardship for GS should ensure that any liability
protection extended to owners and operators does not result in the unintended consequence of
reducing their incentive to appropriately consider environmental/public health risks in the design,
siting and operation of GS sites.
5. Approach should not deter development of projects that have public benefits:
Approaches should not result in excessive barriers to commercial-scale development of GS, or
deprive the general public of the benefits of reduced CC>2 emissions due to GS technologies.
Other Considerations
Jurisdiction. Approaches should consider applicable provisions of federal and state law. The
nature of an adverse occurrence and attendant loss or injury will influence where the jurisdiction
lies (federal and/or state), and thereby influence which (if any) party can transfer or assume
liability.
Cross-Boundary Considerations. Approaches should consider how to administer funds for GS
sites that cross state boundaries. For example, designers of approaches to post-site-closure
stewardship may consider establishing sub-limits by site and/or by state. If so, a key
consideration would be the basis for establishing such sub-limits, and whether these sub-limits
would change over time to account for corresponding changes in GS risk(s).53
CONCLUSION
As noted earlier, the primary purpose of this paper is to describe the approaches that may help inform an
approach for GS stewardship after site closure. However, they are not the only models that the Agency
may consider as it develops a final approach. There are many factors that will need to be taken into
consideration as EPA evaluates potential options. The perspectives of stakeholders, including state
governments and the business community will be critical in helping EPA develop an appropriate
framework.
53 For example, a sub-limit by site would define the maximum coverage available to that site to satisfy liabilities.
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