Biden Administration Announces New Initiatives to Lower Emissions and Support a Net-Zero Economy – What this Means for CCUS
On February 15, 2022, the Biden administration announced a slew of low carbon emissions initiatives for the industrial sector in support of the administration’s goal to achieve a net-zero economy. The initiatives cover multiple federal agencies and working groups, with a heavy emphasis on supporting efforts to decarbonize certain greenhouse gas (“GHG”)-intensive industries and supporting the development of both hydrogen technologies (including production, transportation, and storage) and carbon capture, utilization and sequestration (“CCUS”) technologies. In connection with these initiatives the White House Council on Environmental Quality (“CEQ”) released draft guidance to assist federal agencies with the regulation and permitting of CCUS activities for public comment. However, as explained below, the details surrounding these efforts remain vague, and some of the proposed regulatory developments may offer imperfect solutions to spurring CCUS, which is itself in the very nascent stages of development. Nevertheless, the announcement reinforces the Biden administration’s commitment to supporting the deployment of CCUS as a critical component to transitioning the U.S. to a low carbon economy and achieving economy-wide net-zero emissions by 2050.
Why Focus on the Industrial Sector
The announcement notes that the industrial sector represents one-third of U.S. GHG emissions. Certain industrial processes, such as steel, aluminum, and cement production, have long been viewed as difficult to decarbonize, because they either rely on chemical reactions that are carbon-intensive or require large amounts of thermal energy, making it difficult to solve the emissions problem through electrification. Moreover, these industries are seen as critical to producing components for electric vehicles, photovoltaic cells, and wind turbines: all products that the administration sees as vital and seeks to rapidly deploy to assist with its economy-wide net-zero goal. These products also represent key targets for investment under the Bipartisan Infrastructure Law enacted last year, and the massive investment in upgrading traditional infrastructure (e.g., roads and bridges) will correspondingly drive greater demand for concrete — another carbon-intensive industrial product for which the administration’s initiatives seek to find low emission solutions.
These initiatives reflect the administration’s view that CCUS is key to unlocking low emissions solutions for GHGs from the industrial sector. The announcement explicitly states that carbon emission reduction efforts alone will not be enough to achieve net zero, and that carbon dioxide (CO2) removal through direct air capture is essential to meeting the climate goals called for by the Paris Agreement and reaffirmed at the 2021 United Nations Climate Change Conference (COP26). These statements underscore similar affirmations of support for CCUS in the Bipartisan Infrastructure Law, recognizing that the large scale deployment of carbon capture, removal utilization, transport and storage infrastructure is “critical for achieving mid-century climate goals.” The underlying message is clear: more support is needed to ensure the widespread deployment of CCUS.
Key CCUS Components and Themes of the Initiative
The announcement on February 15, 2022, presents an array of federal efforts to either support the development of, or provide greater clarity with respect to, the regulation of CCUS projects. Multiple agencies and federal task forces will be a part of this effort, including the Departments of Defense, Energy, Interior and Transportation, the U.S. Environmental Protection Agency (“EPA”), the General Services Administration (GSA), and the White House Office of Management and Budget. The approaches described by the administration to decarbonize the industrial sector cover everything from federal procurement, international trade, research grants, and the creation of working groups to foster development of low carbon tech. While all of the efforts have the potential to impact CCUS projects in some form, certain of the efforts announced explicitly call for greater regulation with respect to CCUS activities and projects.
- Revisions to the EPA’s Mandatory Greenhouse Gas Reporting Rule (“GHGRP”). The administration’s announcement states that the EPA will “strengthen” existing requirements and “transparency” with respect to CCUS and specifically add requirements for reporting with respect to direct air capture and carbon storage. The EPA’s GHGRP already has requirements for carbon capture and sequestration projects and CO2 injection that occurs in connection with enhanced oil recovery.
- New Regulations for CCUS on Federal Lands (Onshore and Offshore). The 2021 Bipartisan Infrastructure Law directed the Department of the Interior (“DOI”) to promulgate regulations related to carbon capture and sequestration activities on the outer continental shelf. While the statue is silent on regulation of CCUS activities on federal lands onshore, yesterday’s announcement indicated that DOI is working to “establish safeguards for geologic sequestration on federally managed lands,” seemingly including onshore activities. Until such time as we see a proposal from DOI, it is not possible to predict how these regulations might compare to EPA’s existing permitting requirements for carbon capture and sequestration.
- CEQ Guidance on Federal Regulation and Permitting of CCUS Activities. The December 2020 Utilizing Significant Emissions with Innovative Technologies (USE IT) Act directed the CEQ to prepare guidance on CCUS, and it builds on a prior CEQ report related to the approach to federal environmental reviews for CCUS projects. The guidance also emphasizes the application of environmental justice best practices for CCUS efforts involving federal actions. Notable provisions in the guidance include:
- Early stakeholder engagement and Tribal consultations.
- Agencies should consider developing programmatic environmental reviews, such as tiered documents or programmatic environmental impact statements (PEISs) under the National Environmental Policy Act (NEPA), or programmatic biological opinions under the federal Endangered Species Act (ESA).
- DOI will clarify the approach to leasing geologic pore space on federal lands.
- Understand and assess the long-term environmental impacts of potential CCUS projects.
- Enhanced transparency and the development of lifecycle analyses for carbon capture and utilization and CO2 removal projects.
Imperfect Solutions Offered by CEQ
The CEQ guidance is replete with lofty ambitions about agencies ensuring that CCUS deployment includes robust environmental analysis, inclusive community and Tribal involvement, and safeguards for the public health and the environment. There is tension, however, between the time it takes to achieve these aims and the CEQ’s recognized imperative that CCUS actions occur in a timely manner in order to support the administration’s 2050 net-zero target.
The guidance offers only a few suggestions for achieving the “efficient, orderly, and responsible deployment of CCUS” that it seeks, but it does not grapple with fundamental realities that project developers in the industry and regulatory agencies with jurisdiction do not have extensive experience in deploying CCUS on a wide scale. For example, many commercial CCUS developments will require a Class VI Underground Injection Control (“UIC”) permit, issued by EPA or by one of the very few states that has Class VI UIC primacy. However, EPA has only permitted two Class VI wells ever, both in Illinois. Currently, only North Dakota and Wyoming have primacy to directly issue Class VI wells, though Louisiana’s primacy application is currently pending approval, and reportedly Arizona, West Virginia, Texas and Oklahoma are all in the process of preparing primacy applications.
The ability of the administration to achieve effectiveness and efficiency will likely come only after companies and agencies develop experience in successfully permitting, building, and operating large-scale CCUS projects. In addition, while EPA has expressed a desire to expeditiously process Class VI UIC permit applications, agency resources are likely constrained by the need to process both permit applications and state primacy applications. The availability of federal resources for processing Class VI UIC permits remains a significant bottleneck to the deployment of CCUS.
The guidance suggests there may be efficiencies in using programmatic NEPA reviews, which could then allow project-specific analyses to tier to the programmatic reviews. Although this may be an efficiency in the long-term, it is unlikely to facilitate any speedier development in the near-term. Even when considering common surface land use projects where the agencies are all familiar with permitting and impacts, programmatic NEPA reviews often take years to complete. Adding project-specific NEPA analysis requirements would itself likely add one to several additional years. Programmatic analyses might yield benefits to CCUS deployment in the 2030s, but it is unlikely to be able to come to the aid of projects in the near-term.
CEQ hits a little closer to the mark in discussing CCUS deployment using the tools provided by the Fixing America’s Surface Transportation (“FAST-41”) Act, which created a program to facilitate agency coordination in permitting major infrastructure projects. The guidance candidly admits that despite the availability of this program, no developers have applied for FAST-41 coverage. Although the FAST-41 program may be helpful in facilitating timely CCUS reviews, projects may yet languish because agencies do not have the same expertise in reviewing CCUS projects as they do with other typical infrastructure projects (e.g., highways). As with programmatic reviews, efficiency benefits from FAST-41 are likely years away.
The guidance does, however, mention one measure that could provide immediate benefits: The Infrastructure Investment and Jobs Act gave EPA additional funds to support its Class VI UIC program ($5 million a year for fiscal years 2022-2026 and $50 million in grants to assist states with seeking primacy). As the guidance notes, if EPA uses those funds to increase staff capacity and training, and to support state UIC primacy efforts, CCUS projects could begin to move more quickly through the permitting pipeline.
The CEQ guidance is open for public comment until March 18, 2022. Proponents of CCUS projects should consider this an opportunity to shape the federal government’s approach to CCUS projects, especially given the potentially perverse outcome that a PEIS could hinder, rather than help, the rapid deployment of CCUS projects. In addition, the CEQ hints that the administration recognizes the need for new pipeline infrastructure to truly spur CCUS and an extensive network of CO2 pipelines will need to be constructed and permitted expeditiously. Given the difficulties permitting pipeline infrastructure in recent years, ensuring sufficient CO2 transportation capacity can be expeditiously permitted is equally as important to the widespread deployment of CCUS as permitting sequestration projects.
While the announcement that DOI will developing its own rules related to permitting CCUS activities on federal lands and offshore federal waters comes as no surprise, revisions to EPA reporting requirements for CCUS projects are a bit perplexing given that certain provisions of the GHGRP already apply to the injection and sequestration of CO2. Perhaps EPA will only seek to add specific requirements for different types of CCUS projects or focus on reporting with respect to CO2 utilization. However, given how extensive the requirements are under Subpart RR of the GHGRP, the regulated community may be wary of any efforts to augment an already robust reporting program. Despite many of these questions, these initiatives represent another data point in a growing list of actions taken by the Biden administration to support the nascent CCUS industry.
This information is provided by Vinson & Elkins LLP for educational and informational purposes only and is not intended, nor should it be construed, as legal advice.