Texas Crawls Towards Primacy for CCS Permits

Carbon capture and sequestration (“CCS”) projects represent a critical pillar in many companies’ strategies to navigate the low-carbon transition. However, the U.S. Environmental Protection Agency’s (“EPA”) delays in issuing permits authorizing CCS projects has hampered development. This permitting logjam includes both EPA’s direct issuance of permits and its review and approval of individual states’ applications for delegated authority to issue permits under the federal Safe Drinking Water Act’s Underground Injection Control (“UIC”) Program. Texas is in the process of seeking primacy to issue Class VI permits under the UIC program, formally submitting a primacy application on December 19, 2022. Since then, however, it has languished in the “pre-application” phase. Earlier this month, the Texas Railroad Commission (“RRC”) finalized new amendments to further align its existing Class VI regulations with federal requirements, taking what hopefully represents a material next step in its efforts to obtain primacy.

Summary of Updates

Texas’ most recent amendments to its CCS regulations became effective on September 11, 2023. The amendments cover a variety of areas, ranging from clarifying the definition of anthropogenic sources of CO₂ that can be sequestered in a Class VI well, evidence required to establish pore space ownership, as well as new test well and mechanical integrity requirements, amongst others. Additionally, several other changes were made to the rules’ financial assurance requirements, including the following:

• Clarifying that the owner or operator must demonstrate adequate financial responsibility for all phases of the project, including post-injection monitoring and corrective action;
• Revising base cost estimates for each phase of the project on the assumption that a third-party contractor will be hired to perform required activities;
• Requiring qualifying financial responsibility instruments to include the following minimum cancellation, renewal, and continuation provisions:
  • Specifications on when the provider becomes liable following a notice of cancellation if there is a failure to renew with a new qualifying financial instrument; and
  • Requirements for the provider to meet a minimum rating, minimum capitalization, and ability to pass the bond rating (when applicable);
• Requiring cost estimates to be adjusted for inflation and qualifying instruments to be updated accordingly, subject to RRC review and approval;
• Imposing new criteria for the ultimate release of the financial instrument.

The amendments also address requirements for Class VI permit conditions, data submittal and demonstration requirements to the RRC that must be met prior to commencing injection, and generally impose 10-year record retention requirements.

Environmental Justice Considerations

Comments to these amendments generally indicated support from industry, but several commenters noted concerns with the novelty of the technology, potential environmental risks, and the RRC’s ability to effectively regulate CCS development. Additionally, while it is not within the scope of the RRC’s rulemaking, some notable comments related to the lack of environmental justice (“EJ”) considerations incorporated into the Texas regulations.

EJ has been a focus of EPA throughout the Biden administration, and its UIC Class VI program is no exception. In line with Executive Orders 12898 and 14096, which, respectively, direct federal agencies to identify and address disproportionate health and environmental impacts and to consider the cumulative impacts on certain communities, EPA has stated that proposed state permitting programs should consider and integrate EJ principles into their permitting programs. On August 17, 2023, EPA released “Environmental Justice Guidance for UIC Class VI Permitting and Primacy” to support state primacy applicants in incorporating EJ principles into their permitting programs and “strongly encouraged” states to implement UIC Class VI programs as described in the guidance. The guidance document provided five themes in implementing an EJ framework for the permitting program:

1. Identify communities with potential EJ concerns;
2. Enhance public involvement;
3. Conduct appropriately scoped EJ assessments;
4. Enhance transparency throughout the permitting process;
5. Minimize adverse effects to underground sources of drinking water (“USDWs”) and the communities they may serve.

While states are not required by law to follow this guidance, EPA does assess state programs’ approach to EJ. In December 2022, EPA sent a letter to state governors calling for states to incorporate EJ and equity considerations into their proposed UIC Class VI programs. The letter also noted that EPA was in the process of evaluating strategies to address EJ considerations in its own UIC Class VI permitting program and foreshadowed its release of the above guidance. As an example, in its proposal to approve Louisiana’s primacy application, EPA noted that it compared Louisiana’s program description and Memorandum of Agreement (“MOA”) it signed with EPA with the EJ elements described in the December 2022 letter and concluded that it was satisfied with Louisiana’s commitment to address these elements. These included requirements to evaluate project areas using EPA’s EJ Screen, to consider increased risk factors facing EJ communities, and to require applicants to assess alternatives and propose mitigating measures to minimize adverse environmental effects.

The RRC’s rules already require applicants to identify whether any portions of their Area of Review (“AOR”) encompass an EJ or Limited English-Speaking Household community, using U.S. Census Bureau data.¹ If such communities are identified, the applicant must make enhanced public outreach efforts, including translation and interpretation services and siting meetings near public transportation if possible. However, EJ is not defined in the rule or elsewhere in Texas law, and drawing from U.S. Census data represents a more limited approach than that taken by EPA, which involves the evaluation of existing environmental hazards, potential exposure pathways, and susceptible sub-populations, often utilizing tools such as EPA’s EJ Screen. These issues were raised primarily in consolidated comments submitted on behalf of a group of Texas-based environmental and clean energy organizations and individuals, though RRC declined to adopt commenters’ recommendations for expanded language related to EJ, citing that such changes fell outside the scope of the current rulemaking. The RRC will instead take the comments into consideration when developing its own MOA with EPA for Class VI program implementation. It is reasonable to expect that EPA will seek commitments from Texas similar to those found in the Louisiana MOA, such as the use of the EJ Screen tool and third-party reviewers when EJ communities are identified within an AOR.

Key Takeaways

Even if the recently finalized amendments lead EPA to deem Texas’ Class VI primacy application complete sometime before the end of the year, any optimism of a speedy primacy process should be tempered by lessons learned from Louisiana. Absent some significant changes in EPA’s review process, it could still be at least two years before Texas ultimately receives primacy. In addition, addressing EJ considerations is already expected to be contentious, as demonstrated by recent objections to Texas receiving Class VI primacy by two members of the Texas Congressional delegation on those grounds. Still, the more that can be done to expedite Texas receiving primacy the better, at least with respect to the timeline for issuance of permits. EPA currently states that its new goal is to issue a final permit decision within 24 months of an application being deemed completed (which can itself be a lengthy process). However, North Dakota — one of only two states with primacy — has a track record of issuing Class VI permits within approximately 4-8 months of receiving a complete application.

¹ 16 TAC §5.204(a)(6) (2023).

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.