[Senate Hearing 111-50]
[From the U.S. Government Publishing Office]



                                                         S. Hrg. 111-50

                    CARBON CAPTURE AND SEQUESTRATION

=======================================================================

                                HEARING

                               before the

                              COMMITTEE ON
                      ENERGY AND NATURAL RESOURCES
                          UNITED STATES SENATE

                     ONE HUNDRED ELEVENTH CONGRESS

                             FIRST SESSION

                                   TO

 RECEIVE TESTIMONY ON S. 1013, THE DEPARTMENT OF ENERGY CARBON CAPTURE 
            AND SEQUESTRATION PROGRAM AMENDMENTS ACT OF 2009

                               __________

                              MAY 14, 2009


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               COMMITTEE ON ENERGY AND NATURAL RESOURCES

                  JEFF BINGAMAN, New Mexico, Chairman

BYRON L. DORGAN, North Dakota        LISA MURKOWSKI, Alaska
RON WYDEN, Oregon                    RICHARD BURR, North Carolina
TIM JOHNSON, South Dakota            JOHN BARRASSO, Wyoming
MARY L. LANDRIEU, Louisiana          SAM BROWNBACK, Kansas
MARIA CANTWELL, Washington           JAMES E. RISCH, Idaho
ROBERT MENENDEZ, New Jersey          JOHN McCAIN, Arizona
BLANCHE L. LINCOLN, Arkansas         ROBERT F. BENNETT, Utah
BERNARD SANDERS, Vermont             JIM BUNNING, Kentucky
EVAN BAYH, Indiana                   JEFF SESSIONS, Alabama
DEBBIE STABENOW, Michigan            BOB CORKER, Tennessee
MARK UDALL, Colorado
JEANNE SHAHEEN, New Hampshire

                    Robert M. Simon, Staff Director
                      Sam E. Fowler, Chief Counsel
               McKie Campbell, Republican Staff Director
               Karen K. Billups, Republican Chief Counsel



















                            C O N T E N T S

                              ----------                              

                               STATEMENTS

                                                                   Page

Anderson, A. Scott, Senior Policy Advisor, Environmental Defense 
  Fund, Austin, TX...............................................    38
Barrasso, Hon. John, U.S. Senator From Wyoming...................     2
Batten, Kit, Ph.D., Science Advisor, Office of the Deputy 
  Secretary, Department of the Interior..........................     9
Bingaman, Hon. Jeff, U.S. Senator From New Mexico................     1
Der, Victor K., Acting Assistant Secretary, Office of Fossil 
  Energy, Department of Energy...................................     3
Freudenthal, Hon. Dave, Governor, State of Wyoming, Cheyenne, WY.    53
Lubnau, Thomas E., II, State Representative From Wyoming, House 
  District 31, Gillette, WY......................................    14
Moor, Karl, Vice President & Associate General Counsel, Southern 
  Company, Atlanta, GA...........................................    32
Murkowski, Hon. Lisa, U.S. Senator From Alaska...................     2
Tombari, John, Vice President, Schlumberger Carbon Services, 
  Houston, TX....................................................    30
Trabucchi, Chiara, Principal, Industrial Economics, Inc., 
  Cambridge, MA..................................................    43

                                APPENDIX

Responses to additional questions................................    55

 
                    CARBON CAPTURE AND SEQUESTRATION

                              ----------                              


                         THURSDAY, MAY 14, 2009

                                       U.S. Senate,
                 Committee on Energy and Natural Resources,
                                                    Washington, DC.
    The committee met, pursuant to notice, at 3 p.m. in room 
SD-366, Dirksen Senate Office Building, Hon. Senator Jeff 
Bingaman, chairman, presiding.

OPENING STATEMENT OF HON. JEFF BINGAMAN, U.S. SENATOR FROM NEW 
                             MEXICO

    The Chairman. Ok. Let me ask everyone to please be seated. 
I welcome everyone here. We have a distinguished group of 
witnesses here.
    This is to consider S. 1013 which is the Department of 
Energy Carbon Capture and Sequestration Program Amendments Act 
of 2009. Senator Barrasso and I introduced this bill along with 
Senators Dorgan, Tester, Bayh, Landrieu, Casey, Voinovich, 
Udall and Conrad. It establishes a national indemnity program 
through the Department of Energy for up to ten commercial 
scale, carbon capture and sequestration projects.
    Based on the input from industrial and environmental NGO 
and other organizations it's been made clear to me that there 
is a real need to for liability treatments and adequate project 
financing for early mover projects. The creation of an 
indemnity program for these large scale, early mover projects 
is an important, necessary step to building confidence for 
project developers as well as the public. S. 1013 sets 
qualifying criteria that will help to ensure that these 
critical early mover projects will be conducted safely while 
addressing the growing concern of reducing greenhouse gas 
emissions from industrial facilities such as coal and natural 
gas, hard utilities, cement plants, refineries, other carbon 
intensive industrial processes.
    This legislation also maps out a clear framework for 
closing down a geological storage site. It's essential to 
consider the issue of safe, long term storage of carbon 
dioxide. It's also critical to take the steps necessary for 
site stewardship during the injection phase directly following 
closure and for long term, preventative maintenance of the 
geologic storage site.
    A science based monitoring and verification is required 
after the injection of carbon dioxide ends to ensure that the 
carbon dioxide remains safely in place throughout the life of 
the project and well beyond the closure phase. This topic of 
reducing greenhouse gases, particularly carbon dioxide 
emissions remains of great concern to me and to all members of 
the committee. Carbon capture and geologic storage holds 
promise as a measure that can be used to mitigate global 
climate change while still allowing the use of fossil fuels at 
electricity generating plants and industrial facilities.
    I'd like to thank each of our witnesses who've come to 
testify as to the merits of the legislation. Also the 
administration witnesses as well as Tom Lubnau, who is here 
representing the State of Wyoming. The efforts that he and the 
Governor, Governor Freudenthal, have undertaken in their State 
legislature to rapidly move forward with commercial carbon 
sequestration projects in Wyoming serves as a model for other 
States to look at as well as a model for us to look at as we 
undertake here in the Senate the deployment of such a promising 
greenhouse gas reducing technology.
    Let me call on Senator Murkowski for any statement she 
would have. Then if Senator Barrasso had any statement I would 
call on him too, since he's prime co-sponsor on the bill. But 
you go right ahead, Senator Murkowski.

        STATEMENT OF HON. LISA MURKOWSKI, U.S. SENATOR 
                          FROM ALASKA

    Senator Murkowski. Thank you, Mr. Chairman. I want to thank 
the witnesses for joining us this afternoon. I think we all 
recognize that the advancement of carbon sequestration 
technology is a very important task. I think we all recognize 
the role that coal has played in the development of our country 
as we look to our energy sources and the value that it holds 
not only in the past tense, but moving forward.
    We've authorized many programs at DOE to advance carbon 
sequestration technologies between FutureGen, the Clean Coal 
Power Initiative, the Regional Partnerships. There's about $4.1 
billion sitting at DOE waiting to be spent. But I think we all 
recognize that it's not always just about money.
    Sometimes there are other matters to be addressed. 
Certainly the responsibility for carbon sequestrationsites over 
the long term is one of those issues that is on the list. The 
bill before us would place that responsibility squarely on the 
shoulders of the Federal Government for a number of 
demonstration projects.
    This would be a bold decision. But it also raises a number 
of questions. I would hope that some of those questions can be 
addressed before we mark up this bill.
    I'm very supportive of carbon sequestration. I believe that 
we must continue to aggressively advance the technology. But I 
want to make sure that we go about that task in the most 
effective way and responsible way so that the technology can 
continue to evolve as quickly as we would like it to do.
    So I look forward to hearing from our witnesses on this 
very important subject today. Thank you.
    The Chairman. Senator Barrasso, did you wish to make an 
opening statement?

         STATEMENT OF HON. JOHN BARRASSO, U.S. SENATOR 
                          FROM WYOMING

    Senator Barrasso. Just briefly, Mr. Chairman. Thank you for 
allowing me to co-sponsor this important piece of legislation 
with you. Like you I want to make sure that we make American 
energy as clean as we can, as fast as we can and do it in a way 
that doesn't increase costs for American families.
    It's especially a privilege to have with us today 
Representative Tom Lubnau. Tom and I served together in the 
Wyoming legislature. Tom and I have held town meetings together 
in his home community in Gillette, Wyoming which is the coal 
capital of the world.
    It is also Mike Enzi's, Senator Enzi's hometown. Mike was 
mayor of that community. We know how important all the energy 
sources are. Coal is a very important part of the energy needs 
of this Nation.
    Tom has taken a significant leadership role, Mr. Chairman, 
in the Wyoming legislature with our carbon sequestration 
legislation. It has been a bipartisan effort. The Governor has 
been very involved. Tom has been involved and significant 
commitment on the part of the entire State because we know how 
important this is for the energy security of our Nation.
    So thank you, Mr. Chairman. Welcome to Representative 
Lubnau.
    The Chairman. Thank you again for co-sponsoring this bill 
with us.
    Let me introduce this first panel.
    Dr. Victor Der is the Acting Assistant Secretary in the 
Office of Fossil Energy in the Department of Energy. Thank you 
very much for being here.
    Dr. Kit Batten is Science Advisor with the Office of the 
Deputy Secretary in the Department of Interior. Thank you for 
being here.
    As Senator Barrasso indicated Representative Tom Lubnau, 
Thomas Lubnau is a State Representative from Wyoming from House 
District 31 in Gillette, Wyoming.
    So thank you all for being here. If each of you could take 
5 or 6 minutes and give us your views on this legislation and 
pros and cons and suggested changes. We would appreciate it.

STATEMENT OF VICTOR K. DER, ACTING ASSISTANT SECRETARY, OFFICE 
             OF FOSSIL ENERGY, DEPARTMENT OF ENERGY

    Mr. Der. I thank you, Mr. Chairman and members of the 
committee. I appreciate this opportunity to discuss the 
Department of Energy's research efforts in carbon capture and 
storage and hope that this information will be helpful to the 
committee as you consider ways to address liability issues 
associated with CCS.
    Our fossil fuels resources, specifically coal, represent a 
tremendous and strategic national asset. Based upon current 
rates of consumption, the United States probably has sufficient 
coal to meet its needs for the next century. Making use of this 
domestic asset in a responsible manner will help the United 
States meet its energy requirements, minimize environmental 
impacts, positively contribute to national security and compete 
in the global marketplace.
    Our focus must be therefore to develop deployable advanced 
technologies necessary to achieve near zero emissions from coal 
use including CCS. The Department remains a leader in the 
development of advanced technologies that have helped reduce 
pollution emissions and have increased power plant 
efficiencies. In fact nearly 75 percent of the coal power 
plants in the United States employs technologies with roots in 
the DOE's program for advanced coal.
    These technological successes coupled with substantial 
funding from the Recovery Act and our fiscal year 2010 budget 
request will help us accelerate the advances and innovations 
needed to meet the challenges of CO2 reduction. To 
accomplish this goal our advanced coal program is focused on 
three important areas:

   Technologies for affordable CO2 capture,
   Establishing a scientific and technical basis for 
        safe and effective storage of CO2, and
   Substantially improving the efficiency and 
        reliability of fossil energy systems.

    All 3 of these areas are important as we work to make CCS 
technologies deployable and cost effective.
    We have a good start in this direction. Years of research 
and demonstration experience have resulted in new concepts 
including the conversion of coal into cleaner, versatile gases 
that can be used to generate power or produce fuels. 
Additionally our research continues to explore emerging 
approaches to clean power generation that hold great promise 
for integration with coal based or combined coal and biomass 
energy plants for CCS. To that end, we are working on CCS 
enabling and transformational technologies including advanced 
gasification combined cycle, advanced hydrogen turbines, 
advanced materials for ultra high efficiency plants, supersonic 
compression and revolutionary concepts for CO2 
capture.
    With regard to storage we continue to implement large scale 
CCS demonstration efforts under the sequestration partnerships 
and the Clean Coal Power Initiative programs. For instance, DOE 
helped fund the development of the Nation's first large scale 
injection and storage site in Decatur, Illinois, which will 
hold one million metric tons of carbon. We also continue to 
conduct analyses of the CO2 geological storage 
capability including a just released study of potential storage 
capability beneath Federal lands.
    This study builds upon prior studies and data from the DOE 
and the United States Geological Survey. Early estimates from 
this study indicate that based on our current levels of 
CO2 emissions these formations have the potential 
capacity to hold about 60 years worth of CO2. So we 
are moving forward with valuable CCS R&D analysis.
    But the success of our programs will ultimately be judged 
by the extent to which emerging, cost effective technologies 
are deployed and more importantly that we get it right. 
Successful implementation of an economically viable national 
CCS system depends on having developed a national set of 
workable, enabling policies. Such policies can help establish 
definitive standards, practices and procedures, encourage 
technology development and investment and address liability 
issues related to carbon capture and storage.
    Whatever structure is created it must encompass the input 
of a broad range of stakeholders in the decision process. DOE 
has made great strides toward the goal of effective deployable 
CCS systems in a 2020 to 2025 timeframe. With continued 
leadership and support from the administration and the 
Congress, the Department can move forward with development of 
new technologies and policies to meet the requirements of a 
safe, secure and clean energy future.
    Again, Mr. Chairman, thank you for the opportunity to 
testify here today. With that I welcome any questions the 
committee may have. Thank you.
    [The prepared statement of Mr. Der follows:]

Prepared Statement of Victor K. Der, Acting Assistant Secretary, Office 
                 of Fossil Energy, Department of Energy
    Thank you, Mr. Chairman and members of the Committee. I appreciate 
this opportunity to provide testimony on the United States Department 
of Energy's (DOE's) research efforts in carbon capture and storage. The 
Department of Energy has not had an opportunity to fully analyze S. 
1013, and therefore, cannot take a position on the bill at this time.
                              introduction
    Fossil fuel resources represent a tremendous national asset. An 
abundance of fossil fuels in North America has contributed to our 
Nation's economic prosperity. Based upon current rates of consumption, 
the United States probably has sufficient coal to meet its need for the 
next century. Making use of this domestic asset in a responsible manner 
will help the United States to meet its energy requirements, minimize 
detrimental environmental impacts, positively contribute to national 
security, and compete in the global marketplace.
    Fossil fuels will play a critical role in our Nation's future 
energy strategy. By developing technologies to mitigate the release of 
carbon dioxide (CO2) into the atmosphere, we can continue to 
use our extensive domestic coal resource while reducing the impacts on 
climate change. Carbon capture and storage (CCS) can play a central 
role in fossil fuels remaining a viable energy source for our Nation. 
CCS is the primary pathway DOE is pursuing to allow continued use of 
fossil fuels in a carbon-constrained future.
    Through fossil energy funding under the American Recovery and 
Reinvestment Act and annual appropriations, DOE's Coal Program is 
working to accelerate the development and industry deployment of CCS to 
meet future energy needs.
    The remainder of my testimony will highlight CCS activities that 
are underway in the Coal Program.
                              coal program
    DOE provides a national leadership role in the development of 
advanced coal technologies. DOE Office of Fossil Energy's Coal Program 
has returned substantial benefits to consumers and taxpayers across a 
broad range of innovative technologies that are now in use throughout 
the world. For example, DOE and the private sector responded to the 
challenge of dramatically reducing the emissions of particulate, 
sulfur, nitrogen oxide, and mercury from coal-based energy systems with 
the development of technologies that enable coal-based power plants to 
meet environmental controls and limits placed on these pollutants. 
These technological innovations have resulted in significant 
environmental benefits: reducing pollutant emissions, reducing water 
use, minimizing wastewater discharge, and reducing solid wastes. DOE 
research and demonstration capabilities are well suited to address new 
challenges associated with the reduction of greenhouse gas emissions as 
a climate change mitigation strategy.
    The Coal Program--administered by DOE's Office of Fossil Energy and 
implemented by the National Energy Technology Laboratory--is designed 
to address climate concerns of coal usage by developing a portfolio of 
revolutionary advanced carbon capture and storage technologies that 
will be economically feasible for deployment by industry. In 
partnership with the private sector, efforts are focused on maximizing 
efficiency and performance, while minimizing the costs of these new 
technologies. In recent years, the program has been restructured to 
focus on CCS. The program pursues the following two major strategies:

          1) capturing carbon dioxide; and
          2) storing it in geologic formations.

    Capturing and storing carbon dioxide and improving the fuel-to-
energy efficiency of CCS will help address pollutant emissions 
reduction, water usage, and carbon emissions on a per unit of 
electricity basis. These plans strive to achieve dramatic reductions in 
emissions and ensure that current and future fossil energy plants will 
meet all emerging requirements for a safe and secure energy future.
    Coal research has resulted in important insights regarding future 
innovations. New engineering concepts have been developed to convert 
coal into gases that can be cleaned and then used to generate power or 
produce fuels. New approaches to clean power generation are emerging 
that hold promise for integration with coal-based or combined coal and 
biomass energy plants. Technologies for achieving CCS are stretching 
beyond basic research, defining pathways in which greenhouse gas 
emissions can be permanently diverted from the atmosphere. With these 
building blocks, a new breed of coal plant can be created--one that 
generates power and produces high-value energy with much less 
environmental impact. DOE's work includes a focus on high priority CCS 
enabling technologies, such as advanced integrated gasification 
combined cycle, advanced hydrogen turbines, carbon capture, and fuel 
cells. These research areas provide the supporting technology base for 
all CCS development.
                  carbon capture & storage innovations
    As part of our Coal Program, we are addressing the key technology 
challenges that confront the wide-scale industrial deployment of CCS 
through industry/government cooperative research on cost-effective 
capture technologies; monitoring, verification, and accounting 
technologies to assess permanence of storage; permitting issues; 
liability issues; public outreach; and infrastructure needs. As an 
example, today's commercially available CCS technologies will add 
around 80 percent to the cost of electricity for a new pulverized coal 
plant, and around 35 percent to the cost of electricity for a new 
advanced gasification-based plant.\1\ The program is aggressively 
pursuing developments to reduce these costs to less than a 10 percent 
increase in the cost of electricity for new gasification-based energy 
plants, and less than a 30 percent increase in the cost of electricity 
for pulverized coal energy plants.\2\
---------------------------------------------------------------------------
    \1\ Cost and Performance Baseline for Fossil Energy Plants, Volume 
1: Bituminous Coal and Natural Gas to Electricity, U.S. Department of 
Energy/National Energy Technology Laboratory, DOE/NETL-2007/1281, Final 
Report, May 2007.
    \2\ The goal for pulverized coal is under development.
---------------------------------------------------------------------------
    The existing research program has been performing CCS field tests 
for many years, where the seven Regional Carbon Sequestration 
Partnerships are drilling wells in potential storage locations and 
injecting small quantities of CO2 to validate the potential 
of key storage locations throughout the country. Substantial progress 
has occurred in the area of monitoring, verification, and accounting of 
CO2 storage with the development and refinement of 
technologies to better understand storage stability, permanence, and 
the characteristics of CO2 migration.
    Research is also focused on developing technology options that 
dramatically lower the cost of capturing CO2 from fossil 
fuel energy plants. This research can be categorized into three 
pathways: post-combustion, pre-combustion, and oxy-combustion. Post-
combustion refers to capturing CO2 from the stack gas after 
a fuel has been combusted in air. Pre-combustion refers to a process 
where a hydrocarbon fuel is gasified to form a synthetic mixture of 
hydrogen and carbon dioxide, and CO2 is captured from the 
synthesis gas before it is combusted. Oxy-combustion is an approach 
where a hydrocarbon fuel is combusted in pure or nearly pure oxygen 
rather than air, which produces a mixture of CO2 and water 
that can easily be separated to produce pure CO2. This 
research is exploring a wide range of approaches: membranes; oxy-
combustion concepts; solid sorbents; CO2 hydrates; and 
advanced gas/liquid scrubbing technologies. These efforts cover not 
only improvements to state-of-the-art technologies but also development 
of several revolutionary concepts, such as metal organic frameworks, 
ionic liquids, and enzyme-based systems, in conjunction with basic 
research in these areas now being conducted by the DOE's Office of 
Science.
    A central piece of our CCS research is DOE's field test program, 
which is being implemented through the Regional Carbon Sequestration 
Partnerships. DOE's field test program reflects the geographic 
differences in fossil fuel use and potential storage sites across the 
United States and targets the use of regional approaches in addressing 
CCS. It encompasses field tests representative of approximately 97 
percent of coal-fired and industrial CO2 emissions, about 96 
percent of the total U. S. land mass, and essentially all the geologic 
storage sites in the country that can potentially be available for 
carbon sequestration. The field tests are conducted through 
partnerships comprised of state agencies, universities, and private 
companies, with the goal of developing the knowledge base and 
infrastructure for the wide-scale deployment of CCS technologies. The 
Regional Partnerships represent more than 350 unique organizations in 
42 States, three Native American Indian Nations, and four Canadian 
Provinces. It is important to note that the non-Federal cost share for 
the field test program is greater than 35 percent, which is a key 
indicator of industry and other partner interest that will lead to the 
success of this program. Each partnership is focused on a specific 
region of the country with similar characteristics relating to CCS 
opportunities.
    DOE is addressing key infrastructure issues related to permitting, 
pore space (underground reservoir) ownership, site access, liability, 
public outreach, and education. DOE works closely with the 
Environmental Protection Agency (EPA) and others in developing CCS 
regulation strategies, which will provide additional certainty for 
future CCS deployments.
    Over the course of these research initiatives, DOE will jointly 
develop Best Practice Manuals on topics such as site characterization, 
site construction, operations, monitoring, mitigation, closure, and 
long-term stewardship. These Manuals, which will be developed in 
conjunction with DOE's Office of Science and the U.S. Geological 
Survey, will serve as guidelines for a future geologic sequestration 
industry in their regions, and help transfer the lessons to all 
regional stakeholders.
                   demonstrations at commercial-scale
    The success of the Coal Program will ultimately be judged by the 
extent to which emerging technologies are deployed in domestic and 
international marketplaces. Both technical and financial challenges 
associated with the deployment of new advanced coal technologies must 
be overcome in order to be capable of achieving success in the 
marketplace. Commercial-scale demonstrations help the industry 
understand and overcome start-up issues and component integration 
issues associated with the implementation of a new technology and 
systems, and gain the early learning commercial experience necessary to 
reduce risk and secure private financing and investment for subsequent 
plants.
    DOE is implementing large-scale projects through the Regional 
Partnerships and CCS demonstrations including the most recent round of 
the Clean Coal Power Initiative (CCPI). The Development Phase (Phase 
III) of the Regional Partnerships is focused on large-scale field tests 
of geologic carbon sequestration on the order of 1 million metric tons 
of CO2 per year, and addresses the liability, regulatory, 
permitting, and infrastructure needs of these projects. The 
Partnerships have brought an enormous amount of capability and 
experience together to work on the challenge of infrastructure 
development. CCPI is primarily focused on component and subsystem 
testing at commercial scale to gain operational integration experience. 
The CCPI Round 3 solicitation specifically targets advanced coal-based 
systems and subsystems that capture or separate CO2 for 
sequestration or for beneficial use, and is also open to any coal-based 
advanced carbon capture technologies that result in co-benefits with 
respect to efficiency, environmental, or economic improvements.
               the american recovery and reinvestment act
    The American Recovery and Reinvestment Act (Recovery Act) 
appropriates $3.4 billion for ``Fossil Energy Research and 
Development.'' These Recovery Act funds will help fund activities 
targeted at expanding and accelerating the commercial deployment of CCS 
technology to provide a key thrust to the Coal Program to accelerate, 
by many years, the advances needed for future plants with CCS.
    The Conference Report accompanying the Recovery Act identifies the 
following major initiatives that will complement and accelerate efforts 
in the Coal Program:

          Maintain Fossil Energy R&D Program: $1 billion to be used to 
        conduct fossil energy research and development programs.
          Additional Funds for the CCPI Round 3: $800 million to be 
        used to augment funding for the CCPI Round 3 competition.
          New CCS Initiative for Industrial Applications: $1.52 billion 
        to be used for a competitive solicitation for a range of 
        industrial carbon capture and energy efficiency improvement 
        projects, including a small allocation for innovative concepts 
        for beneficial CO2 reuse.
          Expand Geologic Site Characterization: $50 million to be used 
        for site characterization activities in geologic formations. 
        DOE expects to require projects to complement and build upon 
        the existing characterization base created by the Regional 
        Partnerships, looking at broadening the range and extent of 
        geologic basins that have been studied to date.
          Initiate a Geologic Sequestration Training and Research Grant 
        Program: $20 million for geologic sequestration training and 
        research grants. This program will emphasize advancing 
        educational opportunities across a broad range of colleges and 
        universities.

    These Recovery Act investments will also be complemented by the 
Carbon Sequestration research efforts of the baseline Fossil Energy R&D 
program. In particular, the efforts of the Regional Carbon 
Sequestration Partnerships highlighted earlier, can be viewed as 
another form of federal partnership in infrastructure investment. These 
Partnerships efforts, spanning our Nation and parts of Canada, will aid 
in understanding all the critical aspects that would be needed to 
support wide-scale deployment of CCS technology, taking into 
consideration the regional differences in geology, infrastructure 
development needs, and industrial activity that can affect the 
deployment of carbon sequestration technologies. The Partnerships have 
also supported studies by the Interstate Oil and Gas Compact Commission 
(IOGCC) that have resulted in the recent development of a model for a 
regulatory framework to support CCS deployment.\3\
---------------------------------------------------------------------------
    \3\ Storage of Carbon Dioxide in Geologic Structures, A Legal and 
Regulatory Guide for States and Provinces, September 25, 2007
---------------------------------------------------------------------------
    Just recently, under DOE's sponsorship, the Southeast Regional 
Carbon Sequestration Partnership (SECARB), in partnership with the 
IOGCC, began a new study, to evaluate the legal and regulatory 
feasibility of developing a pipeline infrastructure in the U.S. 
specifically dedicated to the transport and storage of CO2. 
The primary objective of the study is to identify barriers and 
opportunities associated with the wide-spread construction of pipelines 
for the transport of CO2 for the purposes of carbon 
sequestration, enhanced oil recovery and other commercial purposes. A 
CO2 Pipeline Task Force\4\ will be formed as part of this 
18-month activity to leverage the combined expertise of the oil and gas 
community to create guidance documents that encompass regulatory, 
legal, environmental, and educational aspects. A particular focus will 
be to incorporate the federal entities having key roles in these 
matters such as the Federal Energy Regulatory Commission, various 
elements of the Department of Transportation, and the Bureau of Land 
Management as part of the study.
---------------------------------------------------------------------------
    \4\ A project ``kick-off'' meeting for the Task Force is expected 
to occur at the IOGCC Mid-Year Meeting scheduled for May 11-13, 2009 in 
Anchorage, Alaska and plans for a review of their final report to occur 
at the IOGCC Mid-Year Meeting scheduled for May 23-25, 2010 in 
Lexington, Kentucky.
---------------------------------------------------------------------------
                              conclusions
    In order to shift to a low-CO2 emission energy future in 
the U.S., we must create an economically viable national CCS system. 
This can only occur in parallel with the development of a national set 
of definitive policies and incentives that encourage technology 
development and reward investments in and capital formation around 
improved carbon performance.
    CCS requires a systems approach that includes not only site 
evaluation, characterization and selection, but must also address rules 
for liability throughout a project's short-, medium-, and long-term 
life. Nation-wide industrial CCS deployment will also require an 
infrastructure for CO2 transportation and storage and the 
development of an agreed upon set of measurement, validation and 
accounting standards, practices, and procedures. Finally, whatever 
structure is created must encompass the input of a broad range of 
stakeholders in the decision process on proposed projects (developers, 
regulators, financiers, insurers, project operators, policymakers, and 
the affected public).
    Today, nearly three out of every four coal-burning power plants in 
this country are equipped with technologies that can trace their roots 
back to the Department's Coal Program. These efforts helped accelerate 
production of cost-effective compliance options to address legacy 
environmental issues associated with coal use. Clean coal and CCS 
technologies will likely play a critical role in mitigating 
CO2 emissions under potential future carbon stabilization 
scenarios. DOE's program is ensuring that enabling technologies will be 
available. The United States must continue to show leadership in 
technology development and future deployment to bring economic rewards 
and new business opportunities both here and abroad.
    I applaud the efforts of this Committee and its Members for taking 
a leadership role in addressing these timely and significant issues. I 
would be happy to respond to any questions members of the committee may 
have.

    The Chairman. Thank you very much, Dr. Der.
    Dr. Batten, go right ahead.

STATEMENT OF KIT BATTEN, PH.D., SCIENCE ADVISOR, OFFICE OF THE 
          DEPUTY SECRETARY, DEPARTMENT OF THE INTERIOR

    Ms. Batten. Thank you, Mr. Chairman, members of the 
committee. Thank you for the opportunity to testify for the 
Department of the Interior on S. 1013. I will also discuss the 
Department's forthcoming report on a framework for geologic 
carbon sequestration on public lands.
    I am Kit Batten, Science Advisor in the Office of the 
Deputy Secretary of the Interior. This position was created at 
the beginning of this administration because Secretary Salazar 
strongly feels that our future both as a Department and a 
Nation is inextricably linked to our understanding through 
science of the world around us. I ask that my entire testimony 
be included in the record and I, excuse me. I am accompanied 
today by Tim Spivak of the Bureau of Land Management who will 
be glad to answer any questions related to the draft report.
    The challenges of addressing CO2 accumulation in 
the atmosphere are significant. S. 1013 calls for the Secretary 
of Energy to carry out a program to demonstrate the commercial 
application of integrated systems for long term geological 
CO2 storage. The legislation addresses key issues 
such as long term liability, monitoring and stewardship.
    The Department of the Interior supports the goals of S. 
1013 and we look forward to working together to resolve legal 
and policy questions as we learn more about the technologies 
and geologic information.
    The Department supports the need for a large scale carbon 
storage program and the need for liability treatments.
    The Department also supports the requirement of science 
based monitoring and verification of the injected 
CO2 throughout the life of a project to beyond the 
closure phase.
    Drawing upon its long history with injecting CO2 
into geologic formations, the Department could offer a 
significant value to these efforts. For example, enhanced oil 
recovery taking place on lands managed by the Bureau of Land 
Management is a CO2 injection technique to allow 
recovery of energy resources from older oil and gas fields. 
This technique provides valuable data and information that will 
facilitate future efforts to effectively capture and sequester 
CO2 in geologic formations.
    The BLM's existing administrative and regulatory framework 
will help facilitate future carbon sequestration demonstration 
projects and potentially leasing. In addition to experience in 
administering a large scale mineral leasing program, the BLM 
has the realty experience for issuing rights of way that could 
help serve the needs for CO2 pipelines on public 
lands. The United States Geological Survey also plays an 
important role in recommending geologic criteria that could be 
incorporated into a set of best practices for geologic site 
selection for sequestering CO2. The USGS has 
released a new assessment methodology for evaluation of carbon 
storage which helps to identify the best places to use geologic 
CO2 sequestration.
    The Secretary of the Interior will be submitting a report 
to Congress containing a recommended framework for geological 
sequestration on public lands in the near future. The 
Department, in coordination with BLM, USGS, EPA and DOE 
examined criteria for identifying candidate geological 
sequestrationsites. This draft report describes Federal 
liability issues related to the release of CO2 
underground.
    A few key findings include:
    At this early stage in the development of CO2 
storage technologies many unknown factors may impact the 
development of a regulatory framework.
    Carbon sequestration may conflict with other land uses such 
as oil and gas or geothermal fields or with drinking water.
    The framework must recognize the long term liability of 
sequestering CO2 and the required commitment for 
stewardship of facilities over an extended period of time.
    Geological carbon sequestration on split estate lands 
presents other complications due to ownership issues of pore 
space. Limitations may need to be placed on surface and 
subsurface uses to ensure integrity of storage. Addressing the 
challenge of reducing atmospheric CO2 and 
understanding the effect of global climate change will be a 
lengthy and complex challenge.
    The Department stands ready to assist Congress as it 
examines these challenges and opportunities. Thank you for the 
opportunity to testify today. I will be happy to answer any 
questions. Thank you.
    [The prepared statement of Ms. Batten follows:]

Prepared Statement of Kit Batten, Ph.D., Science Advisor, Office of the 
              Deputy Secretary, Department of the Interior
                              introduction
    Mr. Chairman and Members of the Committee, thank you for the 
opportunity to be here today to discuss S. 1013, the Department of 
Energy Carbon Capture and Sequestration Program Amendments Act of 2009. 
I also will discuss the forthcoming Department of the Interior Report 
to Congress: Framework for Geological Carbon Sequestration on Public 
Land, created in compliance with section 714 of the Energy Independence 
and Security Act of 2007 (EISA).
    I am Kit Batten, Science Advisor in the Office of the Deputy 
Secretary of the Department of the Interior. This position was created 
at the beginning of this administration because Secretary Salazar 
strongly feels that our future--as a Department and as a nation--is 
inextricably linked to our understanding, through science, of the world 
around us.
    S. 1013 calls for the Secretary of Energy to carry out a program to 
demonstrate the commercial application of integrated systems for long-
term geological storage of carbon dioxide. The Department of the 
Interior has not had an opportunity to fully analyze S. 1013, and 
therefore, cannot take a position on the bill at this time. However, 
the Department supports the need for large-scale demonstrations to 
address key questions surrounding long-term carbon storage. 
Additionally, the Department supports the requirement of science-based 
monitoring and verification of the injected carbon dioxide plume 
throughout the life of the project to beyond the closure phase. The 
Department, through our on-the-ground land managers and scientists, 
believes we could offer a significant value added to these efforts.
   the role of the bureau of land management and the u.s. geological 
                                 survey
    As the Nation's largest land manager, the Bureau of Land Management 
(BLM) is entrusted with the multiple-use management of 258 million 
acres of land, and administers 700 million acres of sub-surface mineral 
estate of which the surface owners are Federal agencies, states, or 
private entities. Of the 1.2 billion acres inventoried by the U.S. 
Geological Survey (USGS) in its National Oil and Gas Assessment, 279 
million acres are under Federal management. The Department diligently 
executes our responsibilities to make these resources available in an 
environmentally-sound manner. Within the framework of a transparent 
public process, we carefully consider habitat, groundwater, air and 
other resources; mitigate impacts through best management practices, 
stipulations and conditions of approval; and balance development with 
other uses across the landscape.
    All of these considerations remain consistent as the Department 
contemplates our role in the use of public lands to sequester carbon.
            challenges of addressing geologic carbon storage
    The challenges of addressing carbon dioxide accumulation in the 
atmosphere are significant. A variety of strategies are being 
investigated to reduce emissions and remove carbon dioxide from the 
atmosphere. Such strategies include the facilitated capture and storage 
of carbon dioxide through sequestration using plants, or by physical 
capture from major sources and injection into geologic formations.
    The Department of the Interior has a long history with injecting 
carbon dioxide into geologic formations. Carbon dioxide injection 
techniques have useful practical applications in processes known as 
enhanced oil recovery (EOR), which currently take place on some public 
lands managed by the BLM. These processes allow the recovery of 
additional energy resources from older oil and gas fields.
    EOR's use of carbon dioxide injection will continue to yield 
valuable data and information that will facilitate future efforts to 
effectively capture and sequester carbon dioxide in geologic formations 
found on public lands. A critical issue for evaluation of storage 
capacity is the integrity and effectiveness of formations for sealing 
carbon dioxide underground, thereby preventing its release into 
underground sources of drinking water, mineral resources, or the 
atmosphere. Current EOR efforts will enhance our understanding of these 
types of critical scientific and geologic issues. The Department 
expects that new information on these issues will continue to be 
generated from activities on BLM-managed lands. As such, we anticipate 
the need for the BLM to play a leadership role in collaborating with 
other Federal agencies, tribes, states, the private sector, and public 
interest groups as we move forward in addressing legal and policy 
issues that arise during development.
                 carbon capture and sequestration (ccs)
    The current atmospheric carbon dioxide concentration is 
approximately 380 parts per million and rising at a rate of 
approximately 2 parts per million annually, according to the most 
recent information from the Intergovernmental Panel on Climate Change 
(IPCC). The 2005 IPCC Special Report on Carbon Dioxide Capture and 
Storage concluded that in emissions reductions scenarios striving to 
stabilize global atmospheric carbon dioxide concentrations at targets 
ranging from 450 to 750 parts per million, the global storage capacity 
of geologic formations may be able to accommodate most of the captured 
carbon dioxide. However, the extent to which this storage capacity is 
economically viable depends on the price of carbon. Also, geologic 
storage capacity may vary widely on a regional and national scale. A 
more refined understanding of geologic storage capacity is needed to 
address these knowledge gaps.
    Geological storage of carbon dioxide in subsurface rocks involves 
injection of carbon dioxide into the pore space of permeable rock 
units. This principle operates in all types of potential geological 
storage formations such as oil and gas fields, deep saline water-
bearing formations, or coal beds. Most of the potential carbon dioxide 
storage capacity in the U.S. is in deep saline formations.
     carbon capture and sequestration (ccs)--doi's management role
    The BLM's existing administrative and regulatory framework will 
help facilitate future carbon sequestration demonstration projects and 
potentially, leasing geologic storage capacity. In addition to 
experience in administering a large-scale mineral leasing program, the 
agency has the realty expertise and an existing framework for issuing 
rights-of-way on public land that could serve future needs for carbon 
dioxide pipelines across public lands. Other programmatic and land 
management expertise, such as the BLM's experience in evaluation of 
potential environmental impacts of projects, will facilitate this 
effort. In addition, the USGS will also play an important role in 
recommending geologic criteria that could be incorporated into a set of 
``best practices'' for geologic site selection.
    The USGS released to the public and interested parties a new 
probabilistic assessment methodology for evaluation of carbon dioxide 
storage. Use of the methodology can help us identify the best places in 
the country to use geologic carbon sequestration and is an important 
step in understanding how much carbon dioxide can be stored 
underground.
    A number of challenges will need to be addressed moving forward, 
and we must make use of current information to inform future 
discussions. For example, the Department has the results of research at 
international non-EOR sites at which large quantities of CO2 
have been injected for as long as 12 years. These sites have operated 
safely and shown no sign of leakage. We believe that the DOI land 
managers and scientists who are on the ground have expertise to offer 
on monitoring carbon sequestration and we would like to work with the 
Committee to facilitate inter-agency coordination.
     energy independence and security act carbon capture provisions
    Relating to section 711 of the Energy Independence and Security Act 
(EISA; Public Law 110-140), the USGS, as mentioned above, recently 
completed a draft methodology to assess geologic CO2 storage 
resources with input from DOE, EPA, state geological surveys, and 
others. Currently, the USGS is in the process of assembling review 
comments and expert evaluations of the methodology so that it can be 
finalized. The USGS plans to apply this methodology in a national 
assessment of geologic storage resources in depleted oil and gas fields 
and saline formations. The initial stages of this assessment are funded 
in the President's Budget for Fiscal Year 2010.
    Section 713 of EISA directs the BLM to maintain records on, and an 
inventory of, the quantity of carbon dioxide stored within Federal 
mineral leaseholds. The BLM is currently implementing the carbon 
capture and storage provisions of the EISA and is nearing completion of 
an initial inventory of carbon dioxide stored within Federal lands up 
to the end of Fiscal Year 2008 and will update this inventory annually.
  framework for geological carbon sequestration on public lands report
    Section 714 of the EISA directs the Secretary of the Interior to 
submit a report to Congress containing a recommended framework for 
geological sequestration on public lands. This report is expected to be 
released in the near future. Through the BLM, in coordination with the 
USGS, the Environmental Protection Agency, the Department of Energy, 
and other appropriate agencies, the Department examined criteria for 
identifying candidate geological sequestration sites in several 
specific types of geological settings. Additionally, the BLM reviewed 
the Interstate Oil and Gas Compact Commission's model regulations for 
carbon capture and sequestration to determine if they are applicable to 
public lands or could serve as a model for the requirements contained 
in Section 714 of EISA.
    In reviewing these model regulations, the BLM considered the 
following criteria and objectives:

   Criteria for identifying candidate geological sequestration 
        sites in several specific types of geological settings;
   A proposed regulatory framework for the leasing of public 
        land or of an interest in public land for the long-term 
        geological sequestration of carbon dioxide;
   A procedure for ensuring any geological carbon sequestration 
        activities on public land provide for public review and protect 
        the quality of natural and cultural resources;
   If appropriate, additional legislation that may be required 
        to ensure that public land management and leasing laws are 
        adequate to accommodate the long-term geological sequestration 
        of carbon dioxide; and
   If appropriate, additional legislation that may be required 
        to clarify the appropriate framework for issuing rights-of-way 
        for carbon dioxide pipelines on public land.

    The report also will describe the status of Federal leasehold or 
Federal mineral estate liability issues related to the release of 
carbon dioxide stored underground in public land, including any 
relevant experience from enhanced oil recovery using carbon dioxide on 
public lands. In addition, the report will identify issues specific to 
the issuance of pipeline rights-of-way on public land, and legal and 
regulatory issues specific to carbon dioxide sequestration on split-
estate lands, where title to mineral resources is held by the United 
States, but title to the surface estate is not.
                           regulatory issues
    At this early stage in the development of carbon dioxide storage 
technologies, especially in the absence of large-scale demonstration 
projects of more than 1 million tons of carbon dioxide per year, many 
unknown factors may impact the development of a regulatory framework 
and best management practices.
    A proposed regulatory framework must recognize carbon dioxide as a 
commodity, resource, contaminant, waste and pollutant. Any regulatory 
or management regime adopted for CO2 should accommodate all 
these realities. For instance, the geologic sequestration of 
CO2 should distinguish between the sequestration of pure 
CO2 and CO2 mixed with other gases such as 
hydrogen sulfide, carbon monoxide, methane, and oxides of nitrogen and 
sulfur. These impurities have the potential to impact the economics, 
technical feasibility, location preferences, land use planning 
requirements, environmental impact mitigation, multiple-resource 
conflict potential, and regulatory oversight of geologic CO2 
sequestration. In this regard, DOI recognizes that the EPA has issued a 
proposed rule regarding carbon sequestration and storage and intends to 
coordinate as necessary as the EPA rule is finalized.
    Carbon sequestration may potentially conflict with other land uses 
including existing and future mines, oil and gas fields, coal 
resources, geothermal fields, and drinking water sources. In addition 
to the existing geophysical and scientific barriers to commercial 
carbon sequestration, a proposed statutory and regulatory framework 
must recognize the long-term liability of any permitting decision to 
sequester CO2 and the required commitment for stewardship of 
facilities over an extended period of time. The scope of liability and 
term of stewardship will be among the longest ever attempted, lasting 
up to hundreds of years or more. Relevant experiences from enhanced oil 
recovery using carbon dioxide on public lands can assist in examining 
this issue.
    Lastly, geological carbon sequestration on split estate lands or 
lands where the surface is managed by other Federal agencies presents 
other complications due to ownership issues of pore space and 
limitations that may need to be placed on surface and subsurface uses 
to ensure integrity of storage.
                                s. 1013
    S. 1013 directs the Secretary of Energy to carry out a program to 
demonstrate commercial application of integrated systems for long-term 
geological storage of carbon dioxide. The goal of this carbon storage 
program is to provide financial and technical assistance of up to 10 
large-scale carbon dioxide storage projects.
    The Department of the Interior supports DOE's work in conducting 
large-scale carbon storage demonstrations. Additionally, we support 
efforts to ensure science-based monitoring and verification of the 
injected carbon dioxide plume throughout the life of a project to 
beyond the closure phase. It must be recognized that effective risk 
management of any geologic sequestration decisionmaking and regulation 
of consequent activity is limited by the current state of the art of 
scientific assessment, monitoring, measurement, verification, and 
mitigation of any potential undesirable consequences occurring on or 
beneath the surface of the land. Additional investment in ongoing 
scientific and engineering research will be essential as geological 
sequestration is a rather new option to reduce greenhouse gas 
emissions.
    Currently, the Department is reviewing the legislation in greater 
detail and we look forward to working with the Committee on these 
issues in the future.
                               conclusion
    Addressing the challenge of reducing atmospheric carbon dioxide and 
understanding the effect of global climate change is a complex issue 
with many interrelated components. The assessment activities called for 
in EISA should ultimately increase the information base upon which 
decision makers will rely as they deal with these issues. It is clear 
that the discussion on this subject will continue and the Department 
stands ready to assist Congress as it examines these challenges and 
opportunities.
    S. 1013 addresses key issues--long-term liability, monitoring, and 
stewardship--that must be resolved in any regulatory framework for 
carbon sequestration. The Department supports the goals of S. 1013 but 
has not had time to fully analyze the bill and establish a position on 
specific provisions. We look forward to working together to resolve 
outstanding legal and policy questions as we continue to learn more 
about the technologies and geologic information necessary in moving 
forward with a carbon sequestration program.
    Thank you for the opportunity to present this testimony. I am 
pleased to answer questions you and other Members of the subcommittee 
might have.

    The Chairman. Thank you very much.
    Representative Lubnau, go right ahead.

 STATEMENT OF HON. THOMAS E. LUBNAU, II, STATE REPRESENTATIVE 
         FROM WYOMING, HOUSE DISTRICT 31, GILLETTE, WY

    Mr. Lubnau. Thank you, Mr. Chairman and members of the 
committee and to my old friend, Senator Barrasso who is often 
times a co-sponsor of bills with me in the Wyoming legislature. 
It's a pleasure to work with you again.
    I bring you greetings from the State of Wyoming where we 
applaud this effort. We have had a bipartisan effort for about 
2 years working on this. Wyoming quietly and without incidence, 
supplies about 10 percent of the Nation's total energy.
    Wyoming supplies annually about 10.01 quadrillion BTUs of 
energy to the United States. To put that into perspective 
that's more than Saudi Arabia, Venezuela, Nigeria and Iraq 
combined supply to the United States. Primarily those resources 
are coal resources, but they're very, very important to the 
State of Wyoming.
    Wyoming has a tradition and a history of trying to be ahead 
of the curve and doing things the right way. An example, it 
wasn't too long ago that one of my predecessors was here 
testifying about Wyoming's Mine Reclamation Act which 
ultimately served as the pattern for the Federal Surface Mine 
Reclamation Acts, SMCRA. For the past 2 years we've been 
working to develop the legal infrastructure to make geologic 
sequestration possible.
    Frankly we fought some really difficult political battles. 
But in the end I think we've got a legislative product upon 
which the State of Wyoming can be proud. I'd like to share some 
of our political experience so that the United States doesn't 
have to travel the same dead end roads that we traveled to get 
to where we are now.
    Wyoming has established a comprehensive legal framework for 
carbon sequestration. The first question we answered was who 
owns the right? In Wyoming on fee land we adopted the American 
rule which is the majority rule that says that the pore space 
is owned by the surface owner.
    Our philosophy in creating the legislation was, as we all 
know, property rights are a bundle of sticks that everybody 
left the legislative session with the same bundle of sticks 
that they came into the legislative session with. So that there 
wasn't a property grab going on. Because when you have the 
property grab, you create a lot of political opposition. So 
that was an important goal.
    We confirmed that the mineral estate is dominant over the 
servient surface estate and the pore space estate. We left 
split estate issues to a matter of contract between the parties 
because we thought that people could deal with their own 
property rights better than government officials sitting in a 
legislative chamber in Cheyenne. We established a comprehensive 
regulatory and permitting process so that those questions were 
answered.
    We established liability with the injector. So that that 
cost shifted to the ultimate consumer. We set up a unitization 
process to protect correlative rights and to allow a process to 
bring in recalcitrant folks who wanted to stop development.
    In looking at this bill, I'm impressed. I had to think long 
and hard about things that I might do differently. This bill 
encourages development.
    It addresses one of the great barriers to deployment 
because we don't have a structure in place. If we ultimately 
impose carbon caps, one of two things is going to happen 
because we're so dependent on coal. Either the carbon caps are 
going to fail or we're going to lose the source of about 50 
percent of our energy because if you look at the timeframes for 
deployment of the other energy sources, it just doesn't happen.
    So two things need to happen for carbon sequestration to be 
developed. We need to define ownership of the pore space under 
Federal lands because the States can't do that. We need to set 
forth some sort of process for liability. Those things this 
legislation does.
    What I would do differently with this bill.
    I'd more clearly define the process. When does the 
indemnification commitment occur? I can't tell from reading 
this legislation when that happens.
    I think that you need to decide as a policy matter whether 
you define enhanced oil recovery in the process or out of the 
process. Right now there's a process in Wyoming, ongoing, 
currently where 40 million tons of carbon dioxide is being 
injected under the ground at the famous Depot Dome oil field.
    I'd demand more specifics onsite characterization because 
nobody has ever done this before. We only have one chance to do 
it right.
    I'd implement a process for removing the inept or 
unscrupulous operator. I don't see that in the legislation. If 
your commitment happens at the beginning of the project you've 
got a long period of time where you're married to that 
operator, I think under this legislation.
    I'd proceed prudently and carefully to allow generational 
advancements.
    I wouldn't nationalize the pore space or aquifers because I 
think that buys litigation chances to form and decreases the 
motivation for people to proceed with these projects.
    Thank you. I'd stand for any questions.
    [The prepared statement of Mr. Lubnau follows:]

 Prepared Statement of Thomas E. Lubnau, II, State Representative From 
                Wyoming, House District 31, Gillette, WY
    Mr. Chairman, Members of the Committee:
    Thank you for the opportunity to share my thoughts on Carbon 
Capture and Sequestration (CCS). Creation of a legal infrastructure to 
make carbon capture and sequestration possible is a key component in 
domestic security, economic recovery and environmental protection.
    I come to you, today, from Campbell County, Wyoming, where we 
supply the raw materials to generate 30% of the nations electricity, 
and 10% of the nations total energy. Annually, Wyoming generates 10.01 
Quadrillion BTU's of energy. That is more energy than Saudi Arabia, 
Venezuela, Nigeria and Iraq, combined.\1\ The bulk of that energy is 
produced in the form of coal, but Wyoming also contributes significant 
oil, natural gas and uranium to the national energy picture.
---------------------------------------------------------------------------
    \1\ Source: Ron Surdam, State Geologist, State of Wyoming 
Geological Survey, A Prospective on the Geologic Sequestration of 
Carbon Dioxide in Wyoming.
---------------------------------------------------------------------------
    As you know, a secure energy source is one of the keys to domestic 
security. The security of the Wyoming resources are best illustrated by 
the fact few people know that less than 50,000 people, working quietly 
and efficiently, produce ten percent of the nation's energy supply, 
every hour of every day of every year.
    The energy is produced in the U.S. for consumption in the U.S. 
Dollars are not being spent overseas to support entities and 
governments who's motivations are not necessarily aligned with the 
interests of the United States.
    About two years ago, the Wyoming legislature sensed a change in the 
political tide in the country. We anticipated that no matter which 
party won the presidential election, the policies of the United States 
Government were going to be ``greener'' than the policies of the past 
three decades. Working together in a bipartisan manner, the Governor's 
Office worked with legislative leadership to craft the legal 
infrastructure necessary to operate geologic carbon capture and 
sequestration sites inside the State of Wyoming. As a result, the State 
of Wyoming has put in place the most comprehensive package of 
legislation in the country to establish the legal framework for 
geologic sequestration activities.
    We felt carbon caps or other regulation of carbon dioxide emissions 
are adopted by this country, the tools should already be in place to 
meet the requirements of such legislation. Without both the legal and 
technical infrastructure in place to take the steps to reduce carbon 
dioxide emissions, such legislation is doomed to failure. While the 
State of Wyoming would never mandate carbon dioxide caps, we felt we 
should take the lead in establishing a paradigm for the geologic 
sequestration of carbon dioxide.
    Wyoming's approach has been to anticipate what questions the large 
finance houses might ask prior to financing a large-scale carbon 
sequestration project, and to answer those questions. As a result, we 
have passed 5 pieces of legislation establishing the legal framework 
for CCS development in Wyoming. At this point, there are a few pieces 
of legislation at the state level needed to round out the package 
(finalizing the form of financial assurances and risk assessment), and, 
as I see it, two things that need to happen at the federal level to 
make geologic sequestration activities possible (addressing the issue 
of long term liability and determining the ownership of pore space on 
federal properties).
    Creating the legal infrastructure necessary for the geologic 
sequestration of carbon dioxide in Wyoming took more than two years to 
and thousands of hours of work to establish. The five bills the Wyoming 
legislature passed to create the legal framework were pore space, 
permitting and regulation, we really mean it, you inject it, you own 
it, and pore space unitization.
                               pore space
    The first bill Wyoming passed was entitled ``Pore Space.'' With 
that bill, we tried to answer the question, who owns the rights to 
authorize geologic sequestration activities under the surface of the 
land. Our underlying philosophy was that everyone who came into the 
legislative session with property rights, left the legislative session 
with the same property rights with which they arrived. In other words, 
as any first year law student knows, property rights are a bundle of 
sticks. Our goal was that everyone who showed up with a bundle of 
sticks, left the legislative session with the same sticks in their 
bundle.
    We determined that the majority rule in the United States was the 
American Rule, which said that the surface owner owns the voids--or as 
we later came to know--pore space under the surface. That determination 
makes sense, when you think the process all the way through. One of the 
first cases dealing with subsurface rights was a case about a salt 
mine. Salt had been mined out of the subsurface, except for a few salt 
pillars that were necessary to keep the roofs of the caverns from 
collapsing. After all the salt that could be mined, was mined, the 
empty salt mine was going to be converted to deep storage.
    The question was who owns the rights to the deep storage?
    The law in the United States, which we adopted from old England, 
says that the mineral owner has the right to use so much of the surface 
and subsurface as is necessary to extract the minerals. Since the salt 
miners were no longer extracting minerals, the court reasoned the salt 
miners did not have the right to use the voids for storage.
    Wyoming codified that rule. We adopted a bill, known as HB89, which 
codified ownership of pore space on fee lands in Wyoming.\2\ In that 
bill, we confirmed that the surface owns the pore space. We declared 
that unless specifically severed, transfers of the surface included 
transfers of the pore space. We confirmed the mineral estate was 
dominant over the servient surface estate, we required a specific 
description of the pore space to be included in the instrument of 
grant, or the instrument was void, and we required, in the instrument 
of transfer, that the instrument specifically describe the rights of 
use of the surface by the pore space owner in the instrument, or no 
rights to utilization of the surface were transferred.\3\
---------------------------------------------------------------------------
    \2\ HB 89 is now codified as W.S. Sec. 34-1-152.
    \3\ We confirmed the mineral estate was dominant over the severed 
pore space estate in a HB 58, the ``we really mean it bill.''
---------------------------------------------------------------------------
    In so doing, we created some interesting political coalitions. The 
Agriculture industry was generally happy because they were the owners 
of the pore space. Their ownership of an asset was confirmed. They had 
control over what happened on the surface of their ranches. The mineral 
industry was sort of happy, or maybe agnostic, because their rights to 
extract the minerals were confirmed. The environmental movement in 
Wyoming found itself in an interesting dichotomy. Wyoming was taking 
the lead in establishing a framework for the carbon-friendly 
utilization of coal. On one hand, they found themselves applauding the 
infrastructure we were creating. On the other hand, they were sad that 
we were making the continued utilization of coal possible.
                       permitting and regulation
    In the early 1970's, Wyoming passed the strictest mining 
reclamation law in the country. We tried to learn from the experience 
of our sister states, who had been overcome with mining related 
environmental problems. As a result, we passed the Wyoming Mine 
Reclamation Act. That law formed the pattern for the United State 
Surface Mine Reclamation Act.
    We are proud of our tradition of environmental protection in 
Wyoming. We love our State, our unique wide open spaces and beautiful 
environment. As much as we love our friends from the Federal 
Government, we think we do a pretty good job of taking care of our 
environment.
    Carbon sequestration activities are regulated under the Clean Water 
Act. Presently, the carbon sequestration wells are regulated as Class V 
experimental wells, or in the case of enhanced oil recovery, Class II 
wells. The EPA has proposed regulations which will create a new class 
of wells, Class IV carbon sequestration wells. Those regulations are 
slated to be finalized somewhere in the summer of 2011.
    The State of Wyoming found that the Underground Injection Control 
(UIC) program was inadequate, in many respects, in protecting the 
environment, and in assuring that carbon sequestration activities were 
conducted in a responsible, ethical and safe manner. As a result, the 
Wyoming State Legislature passed HB 90, now codified as W.S. Sec. 35-
11-313. That statute creates a comprehensive permitting and regulatory 
scheme which regulates, from cradle to grave, carbon sequestration 
activities. The legislation, and the concomitant regulations which are 
forthcoming, create a paradigm in which the carbon sequestration 
operator must operate safely and according to law.
    The essential provisions of the regulation include a general 
prohibition against carbon sequestration activities in the State of 
Wyoming unless permitted in accordance with this chapter.
    Enhanced oil recovery activities (``EOR'') are exempted from the 
Act, because they are governed, and have been governed for the past 40 
years by the Wyoming Oil and Gas Conservation Commission. During the 
last 40 years, enhanced oil recovery activities have been conducted in 
the State of Wyoming without incident. One of the weaknesses of the 
legislation pending in front of this committee is there is no a 
distinction between EOR activities and geologic sequestration of carbon 
dioxide for pure geologic sequestration purposes. Currently in Wyoming, 
there is an Enhanced Oil Recovery project in which, ultimately, 40 
million tons of CO2 will be injected and sequestered 
underground. If the intent of this committee is to finance those types 
of projects, then the legislation is fine. If not, then the legislation 
may need modification.
    In order to obtain a Wyoming permit for geologic sequestration of 
carbon dioxide, one must describe the geology, including i) 
geochemistry, structure and faulting, fracturing and seals, 
stratigraphy and lithology including petrophysical attributes; ii) a 
characterization of the injection zone and aquifers above and below the 
injection zone which may be affected, including the applicable pressure 
and fluid chemistry data to describe the projected effects of injection 
activities; iii) the identification of other drill holes and operating 
wells that exist within and adjacent to the proposed sequestration 
site; iv) an assessment of the impact to fluid resources, the 
subsurface structures and the surface of land that might reasonably be 
expected to be impacted and the measures required to mitigate such 
impacts; v) plans for environmental surveillance and excursion 
detection, prevention and control programs; vi) site and facilities 
descriptions, including documentation sufficient to demonstrate the 
applicant has all legal rights to sequester carbon dioxide and 
associated constituents into the proposed geologic sequestration site; 
vii) proof the wells are deigned to the minimum standards set forth by 
the Wyoming Oil and Gas Conservation Commission; viii) a plan for 
periodic integrity testing of all wells; ix) a monitoring plan to 
assess the migration of injected carbon dioxide; x) proof of financial 
assurances; xi) a detailed plan for post-closure monitoring; xii) proof 
of notice to surface owners, mineral claimants, mineral owners, lessees 
and others of record of the subsurface interest; xiii) a requirement 
that any excursions are immediately reported; xiv) a procedure for 
terminating the permit if excursions cannot be controlled; and, xv) 
such other conditions or requirements as the department of 
environmental quality deems necessary to carry out the purposes of this 
section.
    Given that the United States Government is accepting long term 
liability for carbon sequestration activities under this legislation, 
my suggestion is at a minimum, insure that such a permitting process is 
in place in each of the states where geologic sequestration activities 
are to occur. I would not recommend federal preemption of state's 
rights in this area. If the voters of a state do not want geologic 
sequestration activities conducted with the borders of their state, and 
the elected representatives of that state are unwilling to establish a 
permitting process, and if the consumers of power are willing to pay 
the increased costs of industrial applications which do not utilize 
geologic sequestration, then I believe it is not the obligation of the 
United States Government to force such activities to occur within the 
borders of those states.
    The legislation pending in front of this committee does not take 
into account the existence of comprehensive, and in many cases, 
stricter state requirements for Carbon Sequestration activities. I 
would suggest the legislation be amended to include the possibility 
that the several states can regulate geologic sequestration activities. 
I would also suggest, as is contained in the UIC program, that the 
states take a primacy role in regulating these pilot CCS programs so 
long as they meet the minimum standards set forth by the United States 
government.
    Whether by regulations, or by legislation, I would urge this body 
to include the minimum standards for permitting set forth in the 
Wyoming legislation. Frankly, at this stage, no one knows, in great 
detail, how to sequester carbon dioxide in large quantities. We only 
have one chance to do this right. We must proceed cautiously and with 
measured steps, rather than rushing headlong into carbon sequestration 
activities.
    For example, there is much discussion in the scientific community 
regarding pressurization of formations. When one injects supercritical 
carbon dioxide into a formation that is already full of a brine 
solution, pressures in that formation build. The fluid dynamics mean 
that something is going to change. When CCS was initially contemplated, 
those fluid dynamics had not been fully explored. The Wyoming State 
Geologist has not modeled those fluid dynamics. His suggestion, to 
preserve homeostasis in the formation is, for every gallon of carbon 
dioxide that is injected into the formation, a gallon of brine is drawn 
out and purified. The waste is reinjected back into to the formation it 
came from with the carbon dioxide, trace minerals are stripped out and 
marketed, and the water from the saline formation is purified and used 
for domestic or agricultural water supply purposes. Now, that is a 
proposal on the table. We have not thought all of the ramifications 
completely through. But, you can see the science is dynamic. With 
dynamic science, we must proceed prudently and cautiously.
                       you inject it, you own it
    Wyoming has taken the policy position that it does not make sense 
for the 550,000 citizens of the State of Wyoming to take liability for 
injected carbon dioxide, when, by and large, the ultimate consumers of 
the power generated from Wyoming resources are from out of state. Given 
that position, the Wyoming State Legislature passed HB 58, which will 
become law on July 1, 2009. That bill creates a rebuttal presumption 
that if a person injects carbon dioxide, that person owns it for all 
purposes, including liabilities of such ownership. This position is one 
from which Wyoming can retreat, but it can never return to this 
position, once the position has been abandoned. Our belief is the risks 
of the project are allocated, through the rate base, back to the user 
of the power. If the federal government provides indemnification, then 
all the better. In that way, a paradigm is created in which the 
injector owns the liabilities, but if certain conditions are met, the 
federal government will assume those liabilities, and the rebuttal 
presumption included in the statute will be overcome, and the liability 
will be assumed by the United States of America.
    One consideration might be that carbon dioxide, in and of itself, 
is a valuable commodity. If the United States government is taking the 
liability for the asset, consideration should be given for taking the 
value of the asset as well--either in the legislation, or in the 
agreements authorized by the legislation.
                              unitization
    Wyoming passed HB 80, which will become law on July 1, 2009, 
provides for the exercise of Wyoming's police power to protect 
``corresponding rights.'' The statute is based upon oil and gas 
unitization principles. In much the same way there are oil and gas 
units formed under state law as well as federal law, I anticipate both 
federal and state carbon sequestration units. The exercise of the 
police power is justified to protect the rights of all pore space 
owners in the unit, and to not waste valuable pore space.
    Under Wyoming's unitization concept, 80% of the owners of the pore 
space consent to the unitization, 20% of nonconsenting landowners can 
be brought into the unit.
    The unitization concept is much more palatable than eminent domain 
to pore space owners who's pore space is involuntarily included in the 
unit, because the pore space owner has the right under the unitization 
concept to participate in the income stream from the unit for the life 
of the unit, rather than being compensated for the value of the pore 
space taken at the outset of the carbon sequestration project. 
Additionally, the pore space owner, through the administration of the 
Wyoming Oil and Gas Conservation Commission has the right to object or 
otherwise have input into the operation of the unit.
    The unitization concept allocates ``economic benefits'' throughout 
the life of the unit, to all parcels of the unit in and equitable 
fashion.
                the last two steps at the federal level
    Wyoming has created as much legal infrastructure for carbon 
sequestration as it can, alone. There will be fine tuning of this state 
legislation for years, but the basic legal infrastructure is there. Two 
things need to happen to make carbon sequestration possible on a large 
scale. The first issue is addressed by S. 1013. Since this process is 
unknown, and the liabilities are unknown, and since the carbon dioxide 
will be under the surface of the earth for geologic time, long term 
liability needs to be allocated. This bill does exactly that. Insurance 
vendors have created a product for the short term liability, but no 
project will proceed until the long term liabilities have been 
addressed.
    The second decision that needs to happen is for the federal 
government to determine the ownership of pore space under federal 
surface and federal minerals. While the several states can determine 
fee property ownership, unless the federal government makes its 
determination regarding federal lands, no project will proceed. States 
cannot preempt the federal government's ownership of its property, and 
so that determination will be key to the development of carbon 
sequestration projects, particularly in the west.
                      comments regarding this bill
    I commend the sponsors of this bill for bringing forward thinking 
legislation which takes a significant step toward proving carbon 
sequestration technologies. At the root of every successful economy is 
cheap and available energy. In order to spur economic recovery and to 
capitalize on the strengths of this country, we need to focus on the 
assets we have, instead of becoming dependent upon the assets of other 
countries. This technology will allow the country to develop its assets 
in a way that is both economically sound and environmentally friendly.
    This bill is a great step in the right direction. Frankly, I had to 
think long and hard about things that I might do differently were I in 
this committee's position.
    Some considerations on the language of this bill are as follows:

          1. This body should make a determination as to whether or not 
        enhanced oil recovery activities will be included as projects 
        which qualify for this legislation.
          2. Either by regulation, or by the language of the bill, 
        consideration should be given to many of the factors included 
        in the Wyoming model permitting scheme. I would suggest minimum 
        permitting requirements. Factors which might be included in 
        section 963(e) are:

                  i) a characterization of the injection zone and 
                aquifers above and below the injection zone which may 
                be affected, including the applicable pressure and 
                fluid chemistry data to describe the projected effects 
                of injection activities;
                  ii) an assessment of the impact to fluid resources, 
                the subsurface structures and the surface of land that 
                might reasonably be expected to be impacted and the 
                measures required to mitigate such impacts,
                  iii) plans for environmental surveillance and 
                excursion detection, prevention and control programs
                  iv) a requirement that any excursions are immediately 
                reported,
                  v) a procedure for terminating the or substituting 
                the operator of the geologic sequestration facility if 
                certain operating parameters are not met. I do not 
                believe that termination of indemnification obligations 
                will encourage financing, but there should be some sort 
                of process by which incompetent or unscrupulous 
                operators can be removed, and others substituted in 
                their stead if operations are not being conducted as 
                required.

          3. The following concept was first put forth by David Victor 
        from Stanford University. He urges that we do not proceed with 
        too much haste in development of these projects. We need to 
        insure development is done in a logical fashion, and that we do 
        not force all of the projects to be built at the same time. 
        Instead, we allow the projects to proceed successively, and 
        that we are allowed to learn from the mistakes from others, 
        rather that charging headlong into the process all at once. 
        While the situation may be perceived as critical, we need to 
        proceed carefully and prudently. We need to account for 
        unexpected consequences of large scale geologic sequestration, 
        which has never been accomplished before at scale, and to work 
        through the process logically and safely.
          4. I urge you to not force a cookie cutter approach on the 
        entire country. Instead, I would defer to the collective wisdom 
        of each of the states. Let each of the states serve as a 
        laboratory for the United States as a whole. The good ideas 
        will rise to the surface.
          5. I have heard proposals, primarily in the halls of 
        academia, to nationalize aquifers and pores space, and to 
        impose a common scheme for carbon sequestration on the entire 
        country. I would urge you not to take this approach. Our 
        strength is in our diversity. Rather than an inbred single 
        thought system, I would urge this technology be allowed to 
        develop in broad and varied ways. The strength in the 
        competition and diversity of ideas will allow us all to benefit 
        by the best process and product available. If we do it the 
        cookie cutter way, there is no motivation to cut costs, compete 
        and provide the highest quality, lowest cost product.
                               conclusion
    Should carbon caps become a reality, the technology for carbon 
sequestration needs to be in place. The United States has vast coal 
resources, and to write them off without developing clean coal 
technologies is, to my way of thinking, short sighted and will have 
serious economic consequences to the country. This legislation is a 
giant step forward, and I wholly support it.
    Thank you for the honor and opportunity to share my thoughts with 
this committee.

    The Chairman. Thank you all very much for your testimony. 
Let me particularly thank you, Representative Lubnau. You've 
obviously spent a great deal of time on this subject. We can 
learn from your insights.
    Dr. Batten, let me ask you. One of the things we did in the 
2007 bill we passed was to request policy recommendations be 
provided to the Congress for carbon capture and storage 
development on public lands. As far as I can tell there are no 
policy recommendations in the report that you've done I was 
wondering is there any prospect that we could receive some 
recommendations of that sort prior to marking up this bill?
    Ms. Batten. Thank you, Mr. Chairman. We are working on a 
report that the first draft of which was prepared in December 
2008. However because of the change of administration it's been 
held up a bit.
    It's currently under review. We are expecting to issue it 
to you very soon. The report asserts that the BLM has adequate 
statutory and regulatory authority to issue leases and permits 
for geologic carbon sequestration activities on public lands 
with the possible exception of the establishment of trust funds 
to manage the long term, post closure phase of 
sequestrationsites. The report recommends that research be 
undertaken in a number of areas to address the many unknowns 
related to carbon dioxide sequestration so that proper 
mitigating measures to protect the environment can be included 
in the land use authorizations.
    It discusses existing law and the authority under that law 
that provides for potential CO2 policy development. 
But it also identifies gaps. So we look forward to sharing that 
final report with you.
    The Chairman. Ok. Let me ask if after looking at this 
proposed legislation that we've introduced as S. 1013. Do you 
believe that the role of the Department of Interior with regard 
to carbon capture and storage on public lands is adequately 
defined in the bill in order for us to proceed with this 
liability program that we've proposed or do you think we need 
to make some changes?
    Have you been able to reach a conclusion on that?
    Ms. Batten. We are still reviewing S. 1013 at the 
Department of the Interior. So what I'd like to do is to get 
back to you soon with some greater clarification on that 
question.
    The Chairman. That would be great if you could do that.
    Ms. Batten. Absolutely.
    The Chairman. Also on page 8 of the report that you've 
referred to this section 714 report. It stated that many 
authorities currently exist to address CCS needs such as for 
managing pipelines, roads and infrastructure and various other 
issues. It goes on to state that existing authorities are not 
likely to address all of the unique issues that carbon 
sequestration presents.
    Could you also get back to us and elaborate a bit more on 
any gaps that you think exist in current authority that we 
ought to try to fill?
    Ms. Batten. Absolutely, Senator. Thank you.
    The Chairman. Mr. Lubnau, Representative Lubnau, it's clear 
of course that Wyoming is the national leader in this area of 
developing CCS law that enables this technology to continue to 
progress to full scale deployment. Let me ask about 
unitization. I don't think you discussed that in your oral 
testimony.
    But I gather you've got a provision in your law that makes 
an 80/20 split on unitization. Can you describe that? How you 
arrived at that? What opposition you encountered to the 
unitization provisions that you put in your law?
    Mr. Lubnau. Certainly. Thank you, Mr. Chairman. We do have 
an 80/20 unitization bill. Surprisingly it went through with 
little opposition. I think there were out of 90 members in the 
Wyoming legislature, 2 no votes in both Houses.
    Here's why. There are two options for bringing in 
recalcitrant owners. There's unitization. Then there's eminent 
domain.
    I challenge anybody right now to determine what the value 
of pore space two miles under the surface is. I mean, you just 
can't make that determination. It could either be a lot or it 
could be nothing depending on what the market bears.
    So for eminent domain purposes you get one payment, up 
front. As a surface owner you don't have a property right 
anymore. So what the unitization bill did was it changed that 
so that you're entitled to a portion of the economic benefits 
as determined by the Wyoming Oil and Gas Commission and by the 
market over the life of the project. So instead of losing the 
property right forever, there's payment over the life of the 
project.
    Additionally if there's the unscrupulous or inept operator, 
you can petition in front of the Oil and Gas Commission. Have 
some say in the way that the unit is operated. So for land 
owners that was a more palatable method of including folks than 
the eminent domain was because you lose absolute control.
    For the mineral industry they were just happy to have a 
process where none existed. If you look at Wyoming's 
Constitution there's enumerated a series of things for which 
you can condemn private property. The only thing that comes 
close is sanitary purposes, roads, mines. But there's nothing 
in Wyoming.
    So it was unconstitutional in Wyoming. So we were faced 
with the choice of nothing or unitization. That's where the 
unitization came from.
    As we've thought through it. We think that's a better use 
of our scarce asset and scarce resource because we can allocate 
equitably through our unitization process. I think we've tried 
to parallel. I mean starting a new industry entirely from 
scratch and using your imagination is hard.
    We've tried to use as many parallels to oil and gas as we 
can because that's something we know. We have the case law and 
the infrastructure legally there. So I think it also provides 
an option to the Federal Government as well to set up a Federal 
unitization statute not unlike the oil and gas Federal 
unitization statutes we have.
    The Chairman. Thank you very much.
    Senator Murkowski.
    Senator Murkowski. Thank you, Mr. Chairman. I apologize 
that I had to slip out and miss the oral testimony of you, Dr. 
Der and Dr. Batten. Let me ask a question about just who 
assumes ownership and liability for the injected CO2 
in competing for the FutureGen site selection.
    Both the State of Illinois and the State of Texas passed 
State laws to assume that liability and to assume ownership of 
the injected CO2. What's the administration's 
opinion on this, and Representative, I'll also ask you your 
opinion on the role of the States in terms of the long term 
stewardship of the CCS sites as compared to the Federal role 
that we see outlined in the legislation that's been drafted. 
I'll ask each of you.
    Dr. Batten, do you want to go first? Thank you.
    Ms. Batten. Sure. Thank you, Senator. I don't believe--
we've done a lot of research on the issue of the various 
components of the liability question that we need to consider 
both short term liability, long term liability, looking at the 
various CO2 is not necessarily always the same 
thing.
    We need to be looking at CO2 as a commodity, as 
a resource, as a waste product, as a pollutant, etcetera. So 
there are many different ways to consider CO2 and so 
when coming up with liability recommendations we need to 
consider all of those different definitions. In terms of 
exactly who should assume liability, we have not come out with 
a position on that yet, but we're looking forward to working 
with you on providing as much information as we can in terms of 
the Department's role in this and moving forward.
    Senator Murkowski. Dr. Der, anything further from the 
administration perspective?
    Mr. Der. I want to echo what Dr. Batten has said. I think 
that currently the administration will probably go through some 
interagency reviews on the processes and to try to address 
those various concerns and natures of CO2 relative 
to liability on the Federal part.
    Senator Murkowski. What about your opinion on State verses 
Federal ownership?
    Mr. Lubnau. Thank you, Senator. Our State has taken a 
position and actually passed a bill that says if you inject it, 
you own it. So the injector owns it.
    Here's why. If the injector owns the liability they pass it 
through their charges to the power plant who passes it through 
their charges and their rate base to the ultimate consumer of 
the electricity. It didn't make sense to us for the 550,000 
people of the State of Wyoming, who are not the ultimate 
consumers of the power, to pay for those liabilities and assume 
those liabilities for our children and grandchildren. So 
ultimately I think that that liability should be best borne by 
the consumer of the power so that we don't build in an 
artificial, economic incentive one way or another.
    I think that this bill is structured much the same way. 
Although backed with the full faith and credit of the United 
States. Because the United States provides indemnity, but they 
charge back to the injector the present value of those 
liability premiums which gets passed on through the rate base 
to the consumer so that the consumer pays. I think that that's 
appropriately where it should be.
    Senator Murkowski. Dr. Der, the Department has struggled 
with calculating the risk profile of loan guarantees for clean 
energy projects. Potential liabilities associated with carbon 
sequestration are probably even less certain. Is the Department 
comfortable with calculating--maybe comfortable is not the best 
word--calculating the fees that will be necessary to cover the 
potential liabilities required by this.
    Have you given any thought about how you even begin the 
task of calculating that liability?
    Mr. Der. To be honest with you I don't think we have 
because the----
    Senator Murkowski. How difficult do you imagine it will be?
    Mr. Der. I think it will be very difficult because of the 
assessment of the risk and how you value that risk. We talk 
about bringing things to present value. It takes, I think, in 
my opinion some very sophisticated economic models and also 
risk models associated with this and long term storage 
liability.
    That being said, I think there are probably some models 
that we could draw upon to see what has been done in the past, 
not only in the United States and overseas. Other models that 
have been put into place for long term liability and see how 
those yielded the results. The worst thing we want to do is to 
create a situation of unintended consequences both from the 
government's part and on the public's part.
    Senator Murkowski. In the 2007 energy bill there were 7 CCS 
demonstration projects, and this legislation provides for an 
additional 10 more. So you've got, well, my notes here say 19 
demonstration projects. I guess that also includes FutureGen, 
representing another and then CCPI, presumably, at least 
another.
    So we're talking about 19 demonstration projects. Is this 
about the right number? Is it too high or is it too low in 
terms of the number of demonstration projects that will be 
necessary to prove out the viability of carbon capture and 
sequestration?
    Mr. Der. We have seven partnerships. But I believe that 
there are 9 projects as part of that partnership and these 10. 
I think that's how you got your number on 19.
    Senator Murkowski. Yes.
    Mr. Der. It actually depends on the nature of the 
integration of the source and the sink. We had different 
geologic formations. We have different types of sources.
    What we really need to do is sit down and look at the 
matrix of what is covered and what needs to be covered so that 
there's confidence in these various sources and sinks to move 
forward to say that there are commonalities that we can draw 
upon for an amount of the projects. But there are some specific 
aspects of each project that we need to be able to 
characterize. So an additional ten is at least the minimum that 
we would need to take a look at.
    Senator Murkowski. An additional 10 on top of the 19.
    Mr. Der. On top of what we had, yes.
    Senator Murkowski. Now, wait. I'm not clear. Indicated by 
this bill?
    Mr. Der. As indicated by this bill.
    Senator Murkowski. Yes.
    Mr. Der. An additional 10 would be very helpful in trying 
to increase the knowledge base.
    Senator Murkowski. Great. Thank you, Mr. Chairman.
    The Chairman. Thank you.
    Senator Dorgan.
    Senator Dorgan. Mr. Chairman, I've been at an 
Appropriations mark up on the Omnibus. So I have not been here 
for the testimony. But this is a really important area and 
appreciate the hearing.
    I will not ask questions because I've not heard the 
witnesses' testimony. Thank you very much.
    The Chairman. Senator Barrasso.
    Senator Barrasso. Thank you, Mr. Chairman. Representative 
Lubnau, a couple things about pore space ownership. You 
mentioned in your testimony the need for determination of pore 
space ownership under Federal surface, Federal minerals.
    You know we come from a State where half of the surface 
area is owned by the Federal Government. Two-thirds of the 
minerals under the ground is owned by the Federal Government, 
so where we have a State like Wyoming and a number of States 
where there is a significant amount of Federal ownership of the 
land, what are the ramifications of leaving the Federal pore 
space ownership unaddressed?
    How important is it that we make sure that we address this 
thing fully?
    Mr. Lubnau. Thank you, Senator. If you don't make the 
determination as to who owns the pore space under Federal lands 
or around, whether it's the surface owner or the mineral owner, 
these projects won't proceed because you can't make the 
determination. You don't know who to ask.
    You've got conflicting property rights. In a sixth of our 
State we've got fee surface over Federal minerals. So who do 
you ask?
    In Wyoming we say that the surface on onerous the pore 
space. We've adopted the American rule which is generally the 
case law in the country. So Wyoming's law says that the pore 
space owner would be the surface owner.
    If you make the determination here that the mineral owner 
owns it then you've got a conflict of laws. Of course, you have 
priority. But you can't know until you all make that 
determination one way or another.
    I'd urge you to adopt the American rule.
    No. 1 for consistency sake.
    No. 2 because it avoids grabbing sticks from one bundle and 
moving it to somebody else's bundle. Because under the law it 
makes the most sense. A mineral owner should own the right to 
extract minerals on that much of the surface and subsurface as 
is necessary to extract minerals.
    I don't think in the definition of a mineral right that 
through any kind of constructed oil other than to recover oil 
and gas or other kind of minerals you have the right to inject 
anything because you're putting something back in instead of 
taking something out. That's clearly under the case law surface 
owner right, I think.
    Senator Barrasso. So based on what you're saying it's very 
critical then that we make sure that we must address pore space 
ownership on Federal land.
    Mr. Lubnau. Yes, Senator.
    Senator Barrasso. Then for the States, 11 or so that have 
more than 40 percent owned by the Federal Government, what are 
the implications if we don't adequately go ahead and address 
that ownership of the pore space in those States?
    Mr. Lubnau. Senator, I don't think that these projects go 
forward because of just the sheer scale. I mean what you're 
talking about here is millions--I mean, right now it's a 
million tons of carbon dioxide. But if these projects go 
forward, Wyoming supplies 400 million tons of coal a year, if 
you do the chemical reaction--if you do the chemistry that 
turns into about 800 million tons of carbon dioxide a year.
    So you compress that down to a liquid. You stick it down 
into the formation. There are some problems with the formation 
in that it pressurizes the formation.
    So that the latest philosophy we have in Wyoming is for 
every gallon of compressed carbon dioxide you put in, you pull 
out a gallon of saline, purify it, put the non-disposable stuff 
back down into the formation it came from and sell the water, 
so that you don't over pressurize the formation. Those are a 
lot of philosophies that you have to work with to get this 
done. But if you don't have a Federal partnership you can't do 
it on fee land alone and without the determination of ownership 
it doesn't get done.
    Senator Barrasso. Could we then go to that question of the 
water? You said for every gallon of the liquid carbon dioxide 
you putting down you're getting a gallon of water purified. Get 
rid of the saline and then you have the water. Then you said 
sell it.
    Talk about a little bit about the proposals for Federal 
ownership of the deep saline aquifers. What are your thoughts 
on that?
    Mr. Lubnau. A couple of things. No. 1, I think we're too 
far down the road for the government to do it without it being 
a taking. Those saline aquifers, for many years, have been 
used.
    We've been doing carbon sequestration for many years, just 
not at scale. We call it either enhanced oil recovery or acid 
gas injection depending on where you put it. If it's in to the 
deep saline aquifer, it's acid gas injection.
    We do it under Class II and I think Class I UIC permits. 
So, but it's not at scale. So there is a valuable asset and has 
been for a long time.
    Now that the pore space ownership has been determined under 
fee lab. There are people who are creating leases and leasing 
their pore space already. So there is a value there. So that's 
a taking.
    The second thing I would say about nationalizing the 
aquifers is that those aquifers are valuable particularly in 
the West where we're short of water. As technology and energy 
and demand for water becomes greater and greater and greater, 
those saline aquifers become more and more valuable to those 
States that already have that water. Taking that water, I 
think, is bad public policy.
    Then the last thing I would say is that if you nationalize 
aquifers you nationalize the pore space because they are the 
same thing, essentially. So you discourage development. Even 
though the Federal Government would say that they own the pore 
space.
    The surface owner who doesn't have any say in the game and 
doesn't have any income motivation to develop the pore space 
does everything in their power to stop that development. 
Prohibits access to surface monitoring facilities, litigates 
for years and years and years to keep the project out. There's 
a whole series of things that I think nationalization of the 
aquifers is just generally bad public policy.
    Senator Barrasso. Thank you, Representative Lubnau. Thank 
you, Mr. Chairman.
    The Chairman. Thank you very much.
    Senator Corker.
    Senator Corker. Thank you, Mr. Chairman. Another great 
hearing. I want to thank the witnesses.
    I realize that we've been using carbon for enhanced oil 
recovery for years and many other things. I know that sometimes 
I use the term when donkeys fly. I don't mean that using 
CO2, sequestering CO2 is not something 
that can be done. I realize we are doing that today and have 
for years to benefit oil recovery and other ways.
    I guess what I have trouble imagining and I could see why 
Wyoming is the center of this activity today. We just had a 
transmission siting hearing talking about a bill. So as I think 
about us trying to capture and sequester carbon, all carbon, 
that's generated through coal produced energy or any other way. 
I think about the myriad of pipelines throughout our country, 
the right of ways, the pumps that I understand need to exist, 
at least every 100 miles or maybe more.
    Is this a reality to think about on a commercial scale our 
country looking at pumping CO2 throughout our 
country using it where we can for oil recovery in other cases 
just sequestering it and getting rid of it? Is this a when 
donkeys fly type of thing or is this reality? Representative 
Lubnau, you seem to be the most knowledgeable person here 
regarding that.
    Mr. Lubnau. Senator, that's--I'll be honest. That's a tough 
question for me to answer. I come to you from the State that 
produces--I come to you from the county that produces the most 
carbon of any county anywhere in the world.
    But that's not true. My county isn't the largest emitter of 
carbon in the State of Wyoming, Yellowstone Park is.
    Senator Corker. During certain seasons. Some seasons not, 
but some seasons yes.
    Can you imagine these pipelines running throughout our 
country and us pumping carbon throughout the country on a scale 
that makes any sense? Are we just all doing this to make coal 
to those who oppose coal, seem like something that's doable 
under a cap and trade scheme and will make sense? Just tell me. 
I mean are we smoking something or is----
    [Laughter.]
    Mr. Lubnau. Senator, we can do it. It will be expensive. I 
think that if you cap carbon, it has to be a reality because we 
don't have enough energy sources to do it otherwise.
    Let me give you an example. Wind has been touted in my part 
of the country as a panacea. You know, we've got thousands and 
thousands of acres where sage brush doesn't grow because the 
wind blows so hard.
    It's also prime sage grouse habitat. Sage grouse are 
endangered, well, I don't know whether they're--there's no 
endangerment finding. But it's a big debate. It shuts down the 
oil and gas industry in the spring when the sage grouse lek.
    Sage grouse are notoriously stupid animals. That's the way 
they are. So they are preprogrammed that if there's something 
seven or ten feet tall, standing in the middle of the prairie, 
that's a raptor perch. They don't lek anywhere near it.
    You put 100,000 acres of wind towers out in the middle of 
Wyoming prairie, you've now put 100,000 acres of what the sage 
grouse perceive to be raptor perches. So they don't lek. So now 
all of a sudden what's touted as a panacea becomes an 
endangered species hazard in the State of Wyoming.
    So you've got a conflict between the Endangered Species Act 
and the clean energy that you want. So do we exempt wind from 
the Endangered Species Act. That doesn't make much sense.
    So things that have been touted as a panacea have 
unintended consequences. What does that lead me to believe? 
That leads me to believe that we continue to need to burn coal.
    If we don't burn coal we just shut off about 50 percent of 
the Nation's energy supply, primarily not on the West Coast and 
not on the East Coast, but in the Rocky Mountain West and the 
industrial Midwest. Those are the people that lose their power. 
So if you put caps on carbon we have to have something like 
this or we just cripple our economy.
    One of 2 things is going to happen. Either the carbon caps 
aren't going to work or the economy is going to fall apart. I 
don't see any other option.
    Senator Corker. You know, I hope this is a solution. I 
think what I hear you saying is that in the interim since coal 
is an important part of our energy production we need to at 
least make believe that it can happen.
    [Laughter.]
    Senator Corker. So is that until we figure out something? I 
mean, I again, I just have--I don't know who is going to own 
these pipelines. I don't know who is going to pay for these 
pipelines. I don't know who is going to monitor these 
pipelines.
    But I have this vision of tremendous amounts of pipelines 
running throughout from every urban area of the country and 
every part of the country into these caverns that we have all 
these legal issues. I hope there's a solution because I'm one 
of those who understands the importance of coal.
    So back to DOE. I actually sense that a better solution for 
us is going to be figuring out something to do with 
CO2 molecules that is beneficial. I think all this 
other stuff, candidly, is a nice past time, but I think that 
scientists, our better solution, is for scientists to find 
something beneficial to do with CO2 by breaking it 
down and turning it into something else.
    I'm just wondering what DOE's thoughts are in that regard. 
Whether we feel like we're investing enough in research to sort 
of circumvent this thing that we are talking about that has 
lots of problems.
    Mr. Der. I think we have looked at various ideas and basic 
sciences in the past and to look at ways to break up the carbon 
molecule. The issue there is that from a chemical bonding, the 
energy it takes to remove that is fairly high. There may be 
some revolutionary technologies out there that we don't 
currently know about that could be on the horizon that let us 
do that.
    There are ideas about mineral carbonization, using the 
CO2 to regenerate products. But in the end when you 
look at the volume of the CO2 that's generated from 
coal plants, fossil plants and any other type of industrial 
processes, it is a large quantity. I don't see us being able to 
subtract this carbon storage issue out of the equation.
    I could be wrong. But if I am wrong, I would be glad to be 
wrong if there was a way to make use of that carbon in such a 
way that it would be of a beneficiary use. We do support 
research in those areas from a science basis, from the 
technology basis.
    Senator Corker. But you do see us solving it because of the 
mass of CO2 that's going to be generated and this 
being common. You do see us solving it by piping carbon 
throughout our country and putting it in the ground.
    Mr. Der. I think I would rather defer to some of the 
industry folks that would be possibly coming up after. But I 
think it is a feasible thing. For example, in terms of gas 
pipeline transmission, we have over 300,000 miles of 
transmission of gas pipelines today. It seems to be able to be 
dealt with in terms of right of ways and the like.
    It will be a challenge. It depends on how the 
transportation network is designed relative to where the source 
and the sink goes to, whether or not it's a local prospect of a 
short distance of the transport of the CO2 to a 
storage site or whether or not there will be large common areas 
where we feed CO2 into a common pipeline. Those 
things need to be looked at. I probably would rather defer to 
industry to see what those best solutions might be.
    Senator Corker. Thank you.
    The Chairman. Let me ask if Senator Barrasso or Senator 
Murkowski have additional questions. Senator Barrasso.
    Senator Barrasso. Just one, Mr. Chairman, if I could maybe 
to Representative Lubnau. The State of Wyoming and General 
Electric are engaged in a project. They're building a $100 
million plant in Wyoming.
    Isn't the idea to have a plant right at the location where 
you do sequester the carbon dioxide without having to go with 
all these hundreds of miles of pipeline. I mean, I thought that 
was the principle behind this is to try to put the facility 
where the coal is made into electricity at the same site where 
the carbon is sequestered. I think North Dakota has some 
similar intentions. Then ship the electricity with the 
transmission lines that we're working on through this 
legislation.
    Mr. Lubnau. Senator, I thought that was the philosophy too. 
The State of Wyoming has just announced that that plant is 
going to be in Cheyenne. The prime geologic place in Wyoming is 
the Rock Springs uplift which is 4,000 square kilometers 
bounded on four sides. The prediction is there's 465 years 
worth of carbon sequestration in that uplift.
    There's a serious, as you know, there's the Jim Bridger 
Power Plant right in the middle there. That is the initial 
plan, just to locate them where there's point sources. Right 
now carbon dioxide is a valuable commodity. It's valuable for 
enhanced oil recovery. If we can get the carbon dioxide to the 
oil fields, it's a valuable commodity.
    The problem is that the sheer volumes of carbon dioxide 
mean that pretty soon that market goes away. Then it becomes a 
waste product. So initially it's economical just to put them, 
well, at the power plants and the Powder River Basin so that 
you can rejuvenate the Powder River Basin oil fields.
    They say that you can get about as much oil out of the oil 
field with the enhanced oil recovery techniques as you got 
during the first life of the oil fields. So out of Teapot Dome 
in the Salt Creek oil field, they think another 200 million 
barrels of oil by re-injecting the carbon dioxide that they're 
getting from the Exxon plant in western Wyoming.
    Senator Barrasso. Thank you, Mr. Chairman.
    The Chairman. Thank you. I was given a note here. Allison 
indicated that in this American Recovery Act we put $100 
million in toward beneficial re use of CO2 at the 
Department of Energy.
    That's in response to Senator Corker's concern about 
whether we're doing research in this. I do think we're trying 
to look at all options. I think that's the wise course.
    It's been very useful testimony. Thank you all for being 
here. We have another excellent panel which I would call 
forward at this point.
    Let me introduce our additional panel.
    It's Mr. John Tombari, who is Vice President with 
Schlumberger Carbon Services in Houston.
    Mr. Scott Anderson, who is Senior Policy Advisor with 
Environmental Defense in Austin, Texas.
    Mr. Karl Moor, who is Vice President and Associate Counsel 
with the Southern Company in Atlanta.
    Ms. Chiara Trabucchi, who is the Principal with Industrial 
Economics in Cambridge, Massachusetts.
    Thank you all very much for being here. Again, I apologize 
for the somewhat delayed hearing. But I think we're still in 
good time.
    Mr. Tombari, if you could take 5 or 6 minutes and give us a 
summary of the main points. Then we'll just go across the panel 
and hear from each of you. Then we'll have some questions.
    Go right ahead.

STATEMENT OF JOHN TOMBARI, VICE PRESIDENT, SCHLUMBERGER CARBON 
                     SERVICES, HOUSTON, TX

    Mr. Tombari. Mr. Chairman, members of the committee, thank 
you for having me here today. I'm here to tell you that the 
technology for the safe storage of CO2 is ready. 
There is an industry waiting to develop. We need to start this 
now for the sake of future generations.
    Now I've been with Schlumberger Carbon Services, 
Schlumberger, for the past 28 years. I spent the last 5 years 
dedicating my life to CO2 storage. Schlumberger has 
been around for 80 years.
    We've consistently spent in research. Last year we spent 
more than $800 million in research. We understand the 
subsurface of the earth. We understand its characteristics, the 
layers, the compartments. We understand how fluids can move in 
and out of the earth.
    Based on our experience, the technology we've developed and 
the projects we've participated in, we're ready to start a 
business to own and operate CO2 storage sites in 
saline formations. Now let me be clear. Saline formations are 
actually rocks that exist miles underneath the earth. They're 
filled with salt water. They're perfect places to put carbon 
dioxide for safe, long term storage.
    Now before we move into this business. We do move 
cautiously because it's not something easy to do. It's 
difficult for us and it pushes the envelope of our technology.
    So there's four things that we need to get started.
    No. 1, is this whole technology won't just work anywhere. 
So site selection is critical. We have ourselves a very strict 
criteria for the types of saline formations where we would be 
willing to do this. So that's No. 1, site selection.
    No. 2, obviously and it's been said before is we need to be 
able to get the rights to the pore space where the 
CO2 will eventually evolve. We're hopeful that those 
issues will be resolved.
    No. 3 is we believe there needs to be a very strong 
regulatory framework developed. We would be unwilling to 
participate in an industry that might not be properly regulated 
that might involve bad practices. We support and we're 
encouraged and we've been involved in the EPA's Class VI UIC 
regulatory work. We hope that proceeds.
    No. 4, and what this act is here to address is the notion 
of long term stewardship. So we believe once again that if the 
site is selected properly and if good characterization work is 
done early with good technology and before injection starts, 
that the operational period of injection, the 10, 20, 30 years 
when CO2 is injected, this operational period is 
manageable. In fact we're willing to take the responsibility 
during this period of time and manage the challenges that will 
occur.
    Now once you stop injecting the CO2, the 
CO2 will continue to move in the formation. But if 
you have selected your site well, and if you've used good 
practices, it will come to equilibrium in a predictable time, 
in a predictable place. So we still would be willing to take 
responsibility through that time period.
    Now once the CO2 comes into equilibrium however, 
in order for an industry to properly form the public will 
demand and they should demand that an entity like the Federal 
Government takes on the hundreds or perhaps thousands of years 
of long term stewardship of the CO2. That's what 
this Act puts forward. It gives encouragement and hope and 
incentive for companies who had used good practices like 
Schlumberger to actually get into this business.
    Thank you.
    [The prepared statement of Mr. Tombari follows:]

Prepared Statement of John Tombari, Vice President, Schlumberger Carbon 
                         Services, Houston, TX
    I would like to open by describing what Schlumberger Carbon 
Services does. This is particularly relevant since the proposed 
legislation will encourage companies such as ours to fill a necessary 
industry role. Schlumberger Carbon Services is a division of 
Schlumberger, the world's leading oilfield services company. 
Schlumberger was founded in 1926 and employs more than 82,000 people of 
over 140 nationalities working in approximately 80 countries. 
Schlumberger invented the first instruments which take measurements 
deep below the earth's surface and allow the understanding of the 
properties of the earth's layers.
    Since its inception, Schlumberger has spent consistently and 
heavily inesearch and development. In 2008, Schlumberger's R&D expense 
was $819 Million USD. It is in large part due to these efforts that 
today we canee with great clarity into the depths of the earth and 
visualize its content. Miles beneath our feet we can identify features 
much like those we observe today on the earth's surface such as: 
rivers, beaches & reefs. These features moved from the surface to the 
depths of the earth over millions of years. Despite the alterations 
that took place over this time, we can maphem, evaluate them and follow 
them as if we were hiking through history. These technologies have been 
used by the oil gas industry for decades to find & produce 
hydrocarbons. As you might imagine they also have extreme relevance to 
the challenges of geologic carbon sequestration.
    It is important that I point out, at this time, that Schlumberger 
does not and never will take equity or production sharing contracts in 
the oil and gas businesses.
    I appear today however, on behalf of Schlumberger Carbon Services 
and my comments relate not to oil and gas but more specifically to the 
prospects for the development of a geologic carbon sequestration 
industry. I joined Schlumberger Carbon Services in 2005 having worked 
elsewhere in Schlumberger since 1981.
    Schlumberger Carbon Services has been involved in carbon 
sequestration since the mid 1990s. In 2005 this became a business 
initiative with the intent of providing comprehensive geological 
sequestration solutions to major point source emitters of 
CO2. Our technical expertise, project management capability 
and technology portfolio in Carbon Services are leveraged from 
Schlumberger's 80 year history. We draw from the existing skills and 
technologies used for safe hydrocarbon exploration, production and 
reservoir management and apply them to sequestration site exploration 
and operations including injection and monitoring of CO2. 
Schlumberger Carbon Services plans to design, build and operate 
sequestration sites in a safe and environmentally friendly manner. We 
hope this can be a business opportunity in the near future. We have 
participated in almost all of the geologic carbon sequestration 
initiatives around the world and are a member of most related 
consortiums and partnerships including all seven of the DOE's Regional 
Carbon Sequestration Partnerships. We are also investing significantly 
in the conversion of existing oil and gas technologies and the 
development of new technologies to fill gaps so that the entire 
lifecycle of a carbon sequestration project can be properly managed.
    If carbon sequestration is to have an impact on the CO2 
concentrations in the atmosphere, we will need to inject billions of 
tons of CO2 underground over the next 40 to 50 years and 
store them for very much longer. The sheer scale of the challenge is 
daunting, and the industry that will need to develop to achieve this 
will be massive. It will require many other companies similar in 
capability to Schlumberger. Hundreds of thousands of technical and non-
technical jobs will be created, and it is not unthinkable that one day 
it will be a sector of a ``clean-energy'' industry that could itself 
reach the scale of today's oil and gas business.
    Despite the enormous potential for the creation of a carbon 
sequestration industry and the hundreds of thousands of clean-energy 
jobs that could be created, progress today is slow, but this is not due 
to the readiness of technology. In my opinion and through our project 
experience, the needed technology is ready for safe and large-scale 
deployment. The risks involved have been thoroughly studied and 
documented. Financial mechanisms for large-scale demonstrations appear 
to be in place and are growing in availability. Regulatory frameworks 
are under development through the EPA and in the State legislatures. 
The final issue to be resolved is the question of who will handle the 
long-term stewardship of a sequestration site. Such stewardship will 
likely extend for hundreds of years and is beyond the likely lifespan 
of any corporation.
    Government legislation and policy must protect the public's 
interests and the taxpayers' money by allowing for the long-term 
stewardship of what will be a diminishing risk. Further, legislation 
should mandate good project practices that will be a condition for 
achieving the desired handover. Companies who manage sequestration 
projects properly must be able to hand them over to the federal 
government once regulatory requirements have been met.
    One suggestion we bring is to provide more clarity around the 
conditions under which the handover would occur. We believe that early 
projects such as the 10 covered by the legislation you are considering 
should be held to the highest of standards with the greatest possible 
protection afforded to the public. DOE estimates show enormous 
potential for sequestration sites throughout the United States so we 
can be highly selective for the first ten. Site selection should be 
heavily weighted by the simplicity of the geologic environment, and the 
minimization of geologic uncertainty. To evaluate this uncertainty, and 
to properly select sites, a minimum standard of site characterization 
and qualification should be set--with the use of the best available 
technologies encouraged. Without naming specific technologies, 
stewardship should only be an option for projects that use the best 
possible site characterization technologies available at the time of 
baseline site description and modeling--prior to injection.
    In closing we are hopeful that the investments we are making may 
soon be put to use, and that the beginning of a new clean energy 
business may be around the corner.

    The Chairman. Thank you very much.
    Mr. Moor.

  STATEMENT OF KARL MOOR, VICE PRESIDENT & ASSOCIATE GENERAL 
             COUNSEL, SOUTHERN COMPANY, ATLANTA, GA

    Mr. Moor. Senator Bingaman, good to see you, sir.
    The Chairman. Good to see you.
    Mr. Moor. Senator Corker. I am Karl Moor with the Southern 
Company. We have 42,000 mega watts of generated capacity. About 
half of that is coal fired. So we're amongst the hopeful.
    We have found over time that the possibility of 
sequestering carbon into something that we had an obligation to 
study and pursue in every way possible. We were very encouraged 
by the introduction of S. 1013. We're here today to endorse the 
bill because we feel it is an important first step in the road 
to making sequestration a real possibility of the lives, our 
lives, our children's lives, our grandchildren's lives.
    John's a very hard act to follow. When you think about 
Schlumberger, the type of company they are, their worldwide 
reputation. They help give all of us confidence that with this 
kind of technological sophistication, this type of commitment 
and these kinds of resources that we can create an environment 
under which sequestration can be made to work.
    It's a daunting task. I was impressed by our State 
representative of Wyoming. A great, articulate spokesman for a 
view that I think all of us hold which is 50 percent of the 
Nation's energy derives from this resource. Our most valuable, 
domestic resource of energy, long term obligation to make sure 
that it's available.
    It's been the secret to economic growth in the Southeast 
and the Tennessee Valley. It is a driving force in our economy 
both through rail, of the infrastructure in and around power 
plants, all that comes with it. It's the thought that we would 
abandon this resource, leave it unused, leave it untapped. Deny 
it to our children and our grandchildren when we in turn had 
already received the benefit of it would seem to me to be a 
terrible waste of a potential that America holds.
    So when we've looked at this issue we've tried to take the 
view that we've had these benefits. What do we do to ensure 
that our children enjoy these benefits as well? So today I 
would tell you that the Southern Company has taken this 
responsibility very seriously by pursuing, really, four things, 
really five things.
    Let me characterize the four first.
    On the technology side there are four things that we 
decided that we had to do.
    First of all we had to do large scale sequestration 
projects to figure out if we knew how to do this where we could 
employ this technology. So we've been pursuing those.
    We also had to learn whether or not we could do this from 
conventional coal fired power plants. So we have a number of 
projects underway under the sponsorship of DOE that we think 
will give us the experience to do that over time.
    The other thing that we said that we needed were working 
partnership with DOE as an opportunity to work at the 
fundamental research basis to understand what the challenges 
will be, not just in the next 5 years, but in the next 50 
years.
    Then finally we thought on the large scale we had an 
opportunity and a requirement really to bring IGCC into 
fruition. So just recently Mississippi Power Company which is 
one of the operating companies of Southern Company, has 
announced that we're going to attempt to build, if the Public 
Service Commission approves it, a 582 mega watt IGCC facility 
in Kemper County, Mississippi with a 50 percent carbon capture 
potential.
    The great news there is the happy coincidence between the 
EOR and carbon capture is a good one for the Southeast. Much 
like the story in Wyoming, we're hoping that we can enhance oil 
recovery even as we sequester carbon. From our experience and 
the experience that we've had from others, we've concluded that 
risk management is at the very heart of this enterprise that we 
have to exercise great care because we are talking about an 
intergenerational creation of risk.
    We've worked with Scott Anderson and others in the 
environmental community diligently to communicate the idea that 
because we take on our stewardship obligation very seriously, 
because we take that obligation very seriously, we want to see 
this policy unfold in a way that creates the maximum 
opportunity for its success. We've also over time concluded, as 
have been talked by the geologists in the industries in and 
around the oil and gas industry as well as through the 
Willfield Services, is that the declining risk curve is a big 
part of this.
    We'd have embraced early in the work of Dr. Sally Benson of 
Stanford University who tells us that the tail is long but it 
narrows. So what we're hoping to do is, as with John and his 
company, take on early responsibility through a combination 
effect. We found over time that we can manage risk, slight risk 
with large negative consequences through products like 
insurance and mutualization.
    We believe those keep the private sector first and foremost 
in the place where they're managing the risk and managing the 
resources that allow you to deal with small risk. That being 
said, you'd say well why then would you support S. 1013? The 
idea that the DOE should be involved in the indemnification 
process and take on a responsibility that private industry 
really should have.
    Our answer that is straightforward. We're at an interesting 
moment in history. The demand for carbon capture and 
sequestration is great. The timeframe that we have to implement 
it is relatively short.
    We find ourselves in a place where we need the experience, 
frankly, of large scale projects which we're committed to as 
well, to teach us what we need to know about risk management, 
about the engineering, about the science. Using that and the 
possibility that these projects will be backward funded using 
risk mechanisms that you'll hear about from Chiara. But we have 
the opportunity to combine all of the elements of both the 
research community and to borrow a phrase from Chiara, all 
three legs working together, the science and technology, the 
law and policy and public policy as well as the engineering.
    If we do those things and we create an environment in which 
early running projects like those that we have planned are 
given the chance to enjoy the umbrella that DOE could provide 
then there's a greater chance that carbon capture and 
sequestration will be deployed. That was why we were excited to 
see the bill. That's why we wanted to congratulate the Chairman 
and all his co-sponsors on the fine work done.
    It is a great product and a wonderful start for an 
enterprise that we, like John, believe needs to begin tomorrow.
    [The prepared statement of Mr. Moor follows:]

  Prepared Statement of Karl Moor, Vice President & Associate General 
                 Counsel, Southern Company, Atlanta, GA
    Chairman Bingaman, Ranking Member Murkowski, and members of the 
Committee, thank you for the opportunity to speak with you today about 
carbon capture and sequestration and, in particular, S. 1013, the 
Department of Energy Carbon Capture and Sequestration Program 
Amendments Act of 2009.
    I am Karl Moor, Vice President & Associate General Counsel for 
Southern Company Services, and while my testimony is only on behalf of 
our Company today, I do serve as Chair of our industry's CCS task force 
through the Edison Electric Institute and as co-chair of the Carbon 
Sequestration Council, a multi-industry group working to further CCS.
    Southern Company is a super-regional energy company serving 
customers in Alabama, Florida, Georgia, and Mississippi and is one of 
the largest generators of electricity in the United States with 42,000 
megawatts of generating capacity. Over 21,000 megawatts of that 
capacity is coal-fired. Southern Company has a long history of 
cooperative work with the U.S. Department of Energy in development of 
technologies for the utility industry, including work on low NOx 
burners and selective catalytic reduction (SCR) systems for NOx 
emissions reductions, flue gas desulfurization (FGD) systems for sulfur 
oxide reductions, mercury control technologies to reduce mercury 
emissions, and various others.
    Southern commends Senator Bingaman and the other sponsors of S. 
1013 for taking this important first step in resolving some of the risk 
management questions surrounding carbon capture and storage. CCS is a 
critical element in the full portfolio of technologies and methods 
needed to address greenhouse gas emissions. Unresolved questions about 
risk have hampered the CCS demonstration projects that are the 
necessary predicates to the commercial deployment of this technology. 
The proposed bill is the beginning of our national conversation on how 
best to answer these questions, while appropriately balancing federal, 
state, commercial and industry roles and responsibilities. Southern 
appreciates this opportunity to comment on the bill and discuss its 
perspective on CCS risk management.
    As we face a future with possible legislation and/or regulations 
that would limit emissions of greenhouse gases, including carbon 
dioxide (CO2), we believe that coal must continue to play a 
role in the energy future of the country. It currently represents about 
fifty percent (50%) of the electricity generated in the nation and its 
ample (two hundred years at current usage rates) and relatively low-
cost domestic supply means it must continue to play a role in our 
energy future. We believe, moreover, that coal can and must play a role 
in a carbon-constrained future. For that reason, Southern Company is 
committed to advancing the development and deployment of carbon CCS, in 
order to facilitate coal's fulfillment of this role.
    As a charter member of the Department of Energy's (DOE) Southeast 
Regional Carbon Sequestration Partnership--or SECARB, Southern Company 
has both co-funded and directly participated in its activities, as well 
as served as a host site for a Phase II project injecting 3,000 tons of 
CO2 into a saline reservoir at Plant Daniel, one of our 
power plants in southeast Mississippi. We are continuing to expand our 
work with SECARB through Phase III of its sequestration demonstration 
program. In this project, Southern Company will not only participate in 
sequestration activities but capture CO2 at one of our coal-
fired power plants as the source of CO2 for the 
sequestration program. This proposed project would feature a 25 MW 
scale CO2 capture plant at one of our power plants, built 
with the technology vendor Mitsubishi Heavy Industries (MHI). This 
capture process will supply approximately 125,000 tons per year for 
four (4) years for sequestration in a saline aquifer.
    We have a further goal of developing a larger scale-up of this 
sequestration project that would feature injection of 1 million tons of 
CO2 per year for at least 4 years into one of the many large 
capacity and safe saline reservoirs in the Gulf Coast Region. This 
project would include a 170 MWe CO2 capture plant to supply 
the CO2 for the proposed sequestration project. This project 
was submitted by Southern Company in response to both the Restructured 
FutureGen and Clean Coal Power Initiative (CCPI) Round 3 solicitations. 
Southern Company believes it is important to integrate CO2 
capture from electric generating facilities, transportation, and 
sequestration in our demonstration programs in an effort to accelerate 
the deployment of safe and cost efficient commercial-scale CCS, and 
that is why we welcome the introduction of the Department of Energy 
Carbon Capture and Sequestration Program Amendments Act of 2009.
    While these two projects will focus on carbon capture technology 
for pulverized coal plants, we are also extremely active in developing 
carbon capture systems for the Integrated Gasification Combined Cycle 
(IGCC) power plant of the future. For IGCC, Southern Company's 
Mississippi Power has recently filed for a certificate of public 
convenience and necessity with the Mississippi Public Service 
Commission (MPSC) to build a 582-megawatt IGCC power plant in Kemper 
County, Mississippi using lignite and designed for fifty percent (50%) 
CO2 capture. The captured CO2 would be 
sequestered through enhanced oil recovery operations in Mississippi oil 
fields. This new power plant will be partially funded with DOE funds 
from CCPI Round 2 and with investment tax credits authorized by the 
Energy Policy Act of 2005.
    Also in partnership with the DOE, Southern Company operates a 
research station in Wilsonville, Alabama, that has focused on 
developing advanced power generating technologies, including 
fundamental research and development (R&D) for coal gasification. It is 
now moving its focus towards fundamental R&D and scale-up of 
technologies to research the capture and separation of CO2 
from both conventional and IGCC coal plants.
    You can see that Southern Company is working on all of the four 
technical areas we believe to be critically important for commercial 
deployment of carbon capture and sequestration: large scale 
sequestration pilot projects, CO2 capture from conventional 
coal plants, IGCC with carbon capture, and fundamental R&D for next-
generation technologies.
    Southern Company is also engaged in advancing the legal and policy 
framework needed to move forward with CCS. We are a member of the 
Carbon Sequestration Council (CSC) that was formed to provide a forum 
for inter-industry communication around key issues related to CCS 
including policy, funding, and legal issues. CSC has developed and 
participated in coordinated, multi-stakeholder approaches for providing 
input to a number of processes, including;

   EPA's technical and rule development workshops leading to 
        the Agency's proposed rule regarding geologic sequestration of 
        carbon dioxide under the Safe Drinking Water Act;
   the development of recommendations by the Ground Water 
        Protection Council; and
   the development of regulatory frameworks by a number of 
        states. CSC has also convened and shared ideas with a broad 
        range of interested stakeholders including environmental groups 
        to further discuss issues and build consensus on key CCS 
        matters.

    Risk management is a significant CCS issue. From our experience and 
that of others, we are learning that appropriate site characterization 
and other risk management efforts mean that CCS projects can be done 
safely and effectively, but there is a need to minimize risk. During 
these early days of pilot projects--and even when CCS is widely 
deployed in the future--risk mitigation issues must be addressed in 
order to procure financing and insurance and to address public concerns 
about siting and the acquisition of property rights.
    Southern Company believes there are four distinct areas of risk 
management that needs to be addressed to facilitate the demonstration 
and deployment of CCS:

          1. Property (including pore space) ownership and issues of 
        trespass--These issues have not been consistently addressed to 
        date, making it difficult to move forward with both commercial 
        scale sequestration as well as with demonstration-scale R&D 
        projects. We believe that interested states and groups are 
        pursuing solutions to these issues and that, over time, given 
        economic incentives, porespace ownership and compensation 
        issues will be addressed. There, however, may be a role for the 
        federal government in encouraging resolution of these issues if 
        a lag develops that would impede full and timely implementation 
        of CCS.
          2. Long-term maintenance and monitoring for closed sites--
        This includes responsibility for the routine inspection and 
        repairs necessary to insure the long-term integrity of all 
        equipment and wells at a closed injection site.
          3. Environmental remediation--This includes the active or 
        passive cleanup of environmental ecosystem damages that may be 
        related to geologic sequestration, such as the impacts 
        associated with CO2 accumulations in groundwater or 
        damages resulting from fluid movements resulting from the 
        injection of CO2.
          4. General tort liability--This includes claims of damage to 
        health, property, or to the environment, as embodied in the 
        definition of liability found in S. 1013.

    In thinking about risk, we generally agree with Dr. Sally M. Benson 
of the Energy Resources Engineering Department and Executive Director 
of the Global Climate and Energy Project at Stanford University, that 
the environmental risk profile of carbon dioxide storage declines over 
time.\1\ Accordingly, we believe that the probability of high-risk 
events decreases as time passes after an injection site has closed.
---------------------------------------------------------------------------
    \1\ http://pangea.stanford.edu/research/bensonlab/presentations/
Carbon-Dioxide-Capture-and-Storage-in-Deep-Geologic-Formations.pdf
---------------------------------------------------------------------------
    Typically, Southern Company uses insurance--a combination of 
private insurance and industry mutual insurance--to manage risks in its 
operation, including long-term risks. We have experience with the 
approach of pooling the risks of very low probability negative events 
across many industry participants. We think that, likewise, this model 
will be appropriate for carbon sequestration, and therefore we are in 
favor of a risk management strategy for CCS that follows this 
combination approach. Encouragingly, insurance companies have started 
offering limited policies for CCS projects. These policies generally 
cover property damage for the first few decades of operation, but will 
not provide long term coverage. Additionally, these policies are annual 
policies that must be renewed every year.
    Southern Company has categorized five phases of the typical CCS 
project timeline and the associated levels of risks for each.

   Pre-injection siting and permitting. This phase is unlikely 
        to pose many risk issues, but the work done in this stage will 
        be critically important in the design of a successful project 
        with a minimal risk profile. Insurance providers must be 
        intimately involved with the site selection and 
        characterization in order to be able to underwrite the 
        policies.
   Injection inception. The start of injection is a fairly high 
        risk phase during the project. Gross failures of the geology 
        for its intended purpose of containment could be revealed 
        during startup. Risks arise from unexpected or unprecedented 
        CO2 movement and leakage, as well as unanticipated 
        fluid movement. Southern Company has concluded that the risk 
        management for the operator will likely be a combination of 
        private and industry mutual insurance.
   Operations. The operations phase is also a high-risk time 
        for the project. As the CO2 continues to be 
        injected, and despite the best site characterization possible, 
        flaws in the containment may be revealed that could result in 
        unprecedented CO2 leaks and intrusion into drinking 
        water. Again, Southern Company believes that a combination of 
        private and industry mutual insurance would be the preferred 
        risk mitigation tool.
   Closure and stabilization. The closure and stabilization 
        phase includes the time after injection stops, when the risks 
        of unintended CO2 and fluid movement should decrease 
        sharply as the CO2 starts to stabilize and stop 
        spreading. We would expect the risks to be handled by the same 
        approach of private and industry mutual insurance, but with 
        less expensive instruments that presumably would recognize the 
        reduced risks of this phase.
   Long-term care. The long-term care phase begins once the 
        site has stabilized and the CO2 has stabilized in 
        the storage reservoir. At this point, the risks come from 
        decaying infrastructure and the residual risks of 
        CO2 movement and leakage or displaced formation 
        fluids. Southern Company feels that the best approach for this 
        phase is a third-party caretaker for the long-term maintenance 
        of the wells and infrastructure. For commercial-scale 
        deployment, however, we do not believe that this structure is 
        the most efficient way to address the risk and remediation. We 
        would prefer that the industry--those with the most CCS 
        experience--be responsible for the risk and remediation instead 
        of delegating this to a third-party. Southern has come to this 
        conclusion after much careful consideration and review of 
        existing mechanisms meant to address long-term risk in other 
        aspects of our industry. We note, however, that other utilities 
        do support the transfer of risk to a third-party, likely a 
        governmental entity, to ensure appropriate monitoring and to 
        undertake possible remediation of CCS projects in the long-term 
        care phase. We are actively engaged in discussions about how 
        best to apportion risk and responsibility with other interested 
        parties.

    In light of our preference for an insurance/mutualization approach 
to risk management, some might ask why we support DOE's involvement in 
risk management for pilot projects. Internally, we refer to this as the 
``first movers' paradox'' or more simply the chicken and the egg. 
Anticipated climate legislation and/or regulation requires accelerating 
the development and deployment of commercial scale sequestration, but 
the private insurance and mutualization mechanisms are not developing 
as quickly as necessary for rapid sequestration deployment. The lack of 
an industry mutual and private insurance can hinder commercial scale 
sequestration and development initially by stifling demonstration-scale 
projects. As noted, the need for risk management mechanisms is greatest 
now, while other more desirable approaches are maturing. This paradox 
must be addressed before commercial scale sequestration can be deployed 
and play its necessary role in meeting carbon constraints. This is why 
Southern Company commends Senator Bingaman and his co-sponsors of S. 
1013 for addressing these complicated but necessary issues for early 
movers of sequestration projects. We agree that the risk management 
approach taken by S. 1013 is a positive step for building confidence 
for project developers, state regulators, as well as the public.
    In offering our support for S. 1013, we would respectfully note 
several ways in which it could be improved to further its laudable 
goals.

   Southern Company is concerned about the length of time 
        between ceasing injection for a sequestration project and 
        complying with the site closure requirements under section 
        (e)(5). We support the need for science-based proof of site 
        closure, but we also recognize that the demonstration that a 
        CO2 plume has reached equilibrium with the geologic 
        formation that comprises its geologic storage unit will vary by 
        geological formation. If equilibrium, as it is used in section 
        S. 1013, is not appropriately defined, it is possible 
        equilibrium would not be demonstrated for an unjustifiably long 
        time period. During this time period, the four requirements 
        under section (f) could have already been demonstrated, 
        rendering the consecutive ten year period unnecessary. We would 
        like the opportunity to work through this issue internally and 
        propose to the sponsors of S.1013 possible other approaches for 
        demonstrating that a sequestration project complies with the 
        site closure requirements.
   Southern Company supports the indemnity agreement included 
        in S.1013, but would be more confident in the agreement if 
        section (g)(2) was changed to ``The Secretary shall agree. . 
        .'' Changing the wording from ``may'' to ``shall'' will 
        guarantee that a recipient who complies with all the terms and 
        conditions set forth in the bill will be provided indemnity.
   Regarding the financial protection that must be maintained 
        under section (e)(7), Southern Company would suggest that the 
        appropriate amount of required protection be defined as the 
        maximum private insurance available in the market for the 
        particular project. The Secretary of Energy would determine the 
        maximum level of coverage available in the private insurance 
        market.

    In addition, we note that there are a few clarifications that would 
eliminate confusion and ensure that the electric power industry, the 
source of about forty percent (40%) of our national CO2 
emissions, can be best positioned to use S. 1013 to demonstrate CCS on 
integrated power plants. First, the bill needs to recognize that flue 
gas is not pure CO2. Second, it may be appropriate to 
require that some of the ten projects are integrated power plants that 
capture and sequester CO2. Finally, to ensure that the fees 
paid are available in the event that indemnification is needed, the 
funds should be deposited into a segregated account instead of the 
general Treasury.
    Southern Company commends the Chairman and his co-sponsors of S. 
1013, the Department of Energy Carbon Capture and Sequestration Program 
Amendments Act of 2009, for addressing some the vital issues that need 
to be addressed to further the development of commercial scale carbon 
sequestration. S. 1013 is an indispensable step in the carbon 
constrained future facing the United States. We look forward to working 
with the Committee and assisting in any way we can. Thank you for this 
opportunity to testify in support of S. 1013.

    The Chairman. Thank you very much.
    Mr. Anderson.

    STATEMENT OF A. SCOTT ANDERSON, SENIOR POLICY ADVISOR, 
             ENVIRONMENTAL DEFENSE FUND, AUSTIN, TX

    Mr. Anderson. Yes. I'm Scott Anderson, Environmental 
Defense Fund. It's not very often that an Environmental Defense 
Fund finds itself in agreement with Southern Company. But I'm 
almost tempted to just endorse his statement and pass the mike 
to Chiara which I'm sure you guys would love me to do. But I 
think I will stick to my text.
    We appreciate the opportunity to be here. We wanted to 
begin by stressing, as others have said, that as a technical 
matter, CCS is ready to begin deployment now. I'm not saying 
it's commercial. But it's ready to begin deployment.
    All the necessary technologies exist. What's missing is 
market drivers to cause companies to put those pieces together. 
With experience, cost will come down and project development 
more routine. We believe that cap and trade legislation can and 
should be the chief market driver. The complementary measures 
such as you have here today are also important.
    We applaud Chairman Bingaman as well as the co-sponsors for 
introducing this legislation. We're pleased, for example, that 
the bill helps clarify the difference between two issues that 
are in fact separate, but frequently confused.
    The first issue is the need for a long term site 
maintenance after sequestration projects are successfully 
closed. Your big policy questions on that issue are who should 
perform that function. How should you define that function and 
how should you fund that function? So that's one issue.
    The second of these 2 issues that's frequently confused is 
the need for project developers to manage the risk of liability 
for damages that result from their activities. It seems that 
you're key policy questions here include the relative roles of 
government and the private sector risk management tools. How 
the relationship between government and the private sector 
should change with time as the CCS industry matures.
    The bill addresses both of these issues. It's a measured 
response to barriers faced by some early mover projects at a 
time when private sector insurance options are not fully 
developed. The bill helps project developers manage risk while 
guarding against so called moral hazard.
    In other words the bill provides coverage for losses while 
creating what I would call underwriting standards, provisions 
such as essential requirements for rigorous geologic 
characterization that will encourage project operators to 
operate responsibly and not cut corners. In this regard and in 
other important respects detailed in my written statement, the 
bills approach to risk management is similar to the insurance 
model as well as other financial instruments that have evolved 
in the private sector. Moreover by establishing a program 
similar to models that exist in the marketplace and by 
restricting the program to a limited number of early projects, 
S. 1013 will encourage the development of market based 
solutions to the emerging CCS industries need to spread risk at 
a reasonable cost.
    In the long run we believe a market based solution should 
be our goal. That model is healthier for taxpayers. It's a prop 
for people who might suffer damages and for the industry itself 
then would be a system where firms routinely depend on the 
government to absolve them from their problems.
    Unlike the enhanced oil recovery industry, unlike the gas 
storage business and unlike the underground injection of 
hazardous waste business, the CCS business, the geologic 
sequestration business has not had time to develop the kind of 
instruments which make it possible for them to approach the 
business in the same way these other industries do. The EOR 
business, the gas storage business, the hazardous waste 
injection business, none of them have any special liability 
relief. Yet they have no problems attracting investment 
capital.
    The only liability relief they have is the expiration of 
statutes of limitation. So just because someone is in an 
injection business of sending large volumes of CO2 
into the underground area, it doesn't automatically follow in 
our judgment that they need special reliability relief in the 
long run. Early project is different.
    So as the industry matures and needed risk management tools 
develop we should evaluate what roles government in private 
industry should play. We should make use of the competitive 
market forces as much as possible. We should also remember that 
liability rules grounded in common law and in statutes serve an 
important function in our society. These rules encourage people 
to act as their fellow citizens expect them to act. So we 
should tinker with them and only cautiously.
    One other issue I'd like to touch on is that the bill 
proposes to give money to States for training regulators. I 
think that's an extremely important part of the bill. We're 
glad to see that. CCS regulation does raise a lot of novel 
issues that need to be approached in a sophisticated way. The 
State regulators could use that help.
    While this bill may not be the right vehicle, it would also 
encourage the Senate to consider giving additional 
appropriations to the States for their actual permitting and 
enforcement work as well. The Ground Water Protection Council 
has estimated that in order for States to fully implement the 
pending CCS rule at EPA it will require some tens of millions 
of dollars of additional financing that they don't have unless 
the Federal Government gives it to them.
    So thank you very much.
    [The prepared statement of Mr. Anderson follows:]

    Prepared Statement of A. Scott Anderson, Senior Policy Advisor, 
                 Environmental Defense Fund, Austin, TX
    Environmental Defense Fund (EDF) appreciates the opportunity to 
speak to you today as the Committee considers how to help early carbon 
capture and sequestration (CCS) projects conduct operations in a safe 
and effective manner and otherwise address risk management issues. 
Since 1967 EDF has linked science, economics and law to create 
innovative, equitable and cost-effective solutions to urgent 
environmental problems. We believe that successful deployment of 
geologic sequestration is a critical path for accommodating coal, the 
world's most abundant but carbon-intensive fossil fuel, to a carbon-
constrained future.
    Climate change is the most critical environmental issue of our 
generation. The chief action the Senate can take to address this 
problem is to adopt cap and trade legislation, which would create a 
market value for avoiding carbon dioxide emissions, and a market 
mechanism for achieving these needed reductions at the lowest cost 
across the economy. The simple fact is that CCS has not been 
commercially deployed because there is currently no commercial reason 
to deploy CCS. A cap on carbon will create the market for this 
technology.
    As part of this national cap and trade legislation, EDF supports 
reasonable complementary measures to help accelerate CCS deployment. 
With SO percent of our nation's electricity coming from coal, it is 
critical to have technologies that enable significant CO2 
reductions from coal fired power plants.
    Fortunately, as a technical matter, CCS is ready to begin 
deployment today. All of the necessary technologies exist. What is 
missing are the market drivers to cause companies to put the pieces 
together. With experience, costs will come down and project development 
more routine.
    Geologic sequestration of carbon dioxide is feasible under the 
right conditions. It has been successfully demonstrated in a number of 
field projects, including several large projects. The IPCC Special 
Report on Carbon Capture and Storage concluded in 2005 that the 
fraction of CO2 retained in ``appropriately selected and 
managed geological reservoirs'' is likely to exceed 99% over 1000 
years.
    The IPCC also concluded that the local health, safety and 
environmental risks of CCS are comparable to the risk of current 
activities such as natural gas storage, enhanced oil recovery and deep 
underground storage of acid gas if there is ``appropriate site 
selection based on available subsurface information, a monitoring 
programme to detect problems, a regulatory system and the appropriate 
use of remediation methods to stop or control CO2 releases 
if they arise.'' The IPCC and others have also noted that the risk of 
leakage will tend to decrease with time.
    The fact that EDF supports the deployment of CCS does not mean that 
we are champions of coal. We are pleased that people increasingly 
recognize that energy efficiency and renewable energy should play a 
leading role in energy and climate policy. As indicated by McKinsey and 
Company's U.S. Greenhouse Gas Abatement Mapping Initiative, there are 
many efficiency and renewable energy strategies that are cost-effective 
and can be pursued even before CCS is deployed on a widespread basis. 
CCS is an important part of the solution, but it is only a part.
                     summary of comments on s. 1013
    EDF applauds Chairman Bingaman and the co-sponsors of S. 1013 
(Senators Barrasso, Dorgan, Tester, Bayh, Landrieu, Casey and 
Voinovich) for introducing this legislation. The bill has a number of 
strengths. We are pleased, for example, that the bill helps clarify the 
difference between two issues that are in fact are separate but are 
frequently confused: (1) the need for long-term site maintenance after 
sequestration sites are successfully closed; and (2) the need for 
project developers to manage the risk of liability for damages that 
result from their activities. The bill addresses both issues. It is a 
measured response to barriers faced by some early mover projects at a 
time when private sector insurance options are not fully developed. The 
bill helps project developers manage risk while guarding against 
``moral hazard.'' In other words, the bill provides coverage for losses 
while creating what in essence are ``underwriting standards''--
provisions that will encourage project operators to operate responsibly 
and not cut corners. In this regard, and in other important respects 
that are detailed below, the bill's approach to risk management is 
similar to the insurance model that has developed over time in the 
private sector. Moreover, by establishing a program similar to models 
that exist in the marketplace and by restricting the program to a 
limited number of early projects, S. 1013 will encourage the 
development of market-based solutions to the emerging CCS industry's 
need to spread risk at a reasonable cost. In the long-run, we believe a 
market based solution for risk management should be our goal. This 
model is healthier for taxpayers, parties who may suffer damages, and 
the industry itself than would be a system where firms routinely depend 
on the government to absolve them of the consequences of their actions.
    We will continue to analyze this legislation and discuss the issues 
raised with other stakeholders. We look forward to the opportunity to 
continue working with members of the committee to make recommendations 
and suggest changes should the need arise.
        post-closure infrastructure maintenance--an appropriate
                          government function
    Properly closed sequestration sites will require stewardship for 
long time periods even though there is sound basis to believe that they 
present little risk. EDF supports the creation of a third-party entity, 
adequately funded by industry, to manage the maintenance of properly 
closed sequestration sites. Ultimately the function might be 
privatized, but it makes sense for the government to perform this role 
for early projects.
    The bill extends DOE's post-closure stewardship obligations beyond 
simple infrastructure maintenance (plugging the occasional leaking 
well, conducting a low-intensity monitoring regime, etc.) to include 
``remediation activities to ensure the geological integrity of the site 
and prevent any endangerment of public safety.'' Given the nature of 
the program established by S. 1013 (one in which the government will 
indemnify eligible sites for damages that do not arise from gross 
negligence or intentional conduct), we believe this broad definition of 
stewardship is appropriate.
    When long-term stewardship policies are crafted for future 
projects, however, we recommend that Congress re-consider the scope of 
any third-party stewardship program. Creation of a third-party entity 
for site maintenance is probably appropriate for both early projects 
and later projects, but the optimum funding method and/or duties of the 
stewardship entity are likely to be different once the marketplace has 
had time to develop robust insurance offerings and other risk 
mitigation tools. In the future it may be desirable to charge fees for 
long-term stewardship that differ based on a given operator's track 
record. Even where closed sites are concerned, it may not be desirable 
for all industry participants to pay for expensive remediation projects 
(as distinct from routine site infrastructure maintenance) where the 
problem is due to a single operator and statutes of limitation have not 
yet expired.
                 a measured response to risk management
    By limiting the number of projects eligible for the indemnity 
program, by basing fees for participation on the estimated risks 
relating to particular indemnification agreements, and by providing 
that projects are not eligible at all unless they meet certain 
criteria, the bill constitutes a measured response to an identified 
problem--the barriers that some early-stage CCS projects face due to 
the lack of fully-developed financial risk management tools in the 
marketplace.
    Many people appear to take it as a forgone conclusion that 
indemnification or ``liability relief' must be a permanent feature of 
the legal system governing carbon capture and sequestration. EDF is not 
convinced that any ``liability relief'' will be needed for the industry 
in the long-run, although we do see some role for special rules and 
institutions for early projects.
    There is no special ``liability relief'' for the enhanced oil 
recovery business or the underground injection of hazardous waste 
business. Natural gas storage operators are not shielded from 
liability. Firms in these industries face potential liability for their 
actions until normal statutes of limitation have run their course or 
the companies are relieved of liability through bankruptcy. Yet all 
three of these businesses inject material into geologic formations and 
appear to have little trouble attracting investment in the marketplace.
    The emerging carbon capture and sequestration industry, on the 
other hand, has not had time to develop a robust approach to risk 
management regarding potential damages that might be caused by its 
actions. Banks and other sources of investment capital are still coming 
to terms with the nature of risk presented by CCS projects and with the 
steps that project operators can take to minimize risks. Private sector 
insurance products recently have become available for CCS projects, but 
it is not yet clear how well this privately available insurance will 
meet the needs of developers. It is not yet clear how rapidly the 
insurance industry will be able to develop expanded offerings should 
additional offerings be necessary or how much competition there will be 
to provide this sort of coverage. We believe it is likely that 
additional insurers will enter this market, and perhaps that the CCS 
industry itself will develop mutual insurance arrangements, but these 
options are not yet in place.
    In this context, we support appropriate efforts to resolve 
regulatory and risk management bottlenecks to technology deployment. 
Since we will need to learn by doing, protections for early movers make 
sense as the technology begins to be deployed--provided proper 
safeguards are in place. However, as the industry matures and needed 
risk management tools develop, we should reevaluate what roles 
government and private industry can and should play.
                minimizing ``moral hazard'' is essential
    To privatize economic benefits while socializing the associated 
risks is not a policy that is likely to yield efficient results or 
encourage workmanlike behavior. Current liability rules, grounded in 
common law and statutes, serve an important purpose--encouraging people 
to act as their fellow citizens, their investors and competitors, and 
policymakers expect them to act.
    S. 1013 clearly was drafted with these principles in mind. Damages 
arising from gross negligence or willful misconduct are excluded from 
coverage. In order to be eligible for indemnification, projects must 
meet a number of standards that can be thought of as underwriting 
standards. One key requirement is that project selection must be based 
on detailed geological information, which is absolutely essential if 
CCS is to become a widespread technology worthy of significant 
government and industry investment. Other important requirements 
include the bill's rigorous criteria for determining whether a site 
qualifies for site closure and participation in the long-term 
stewardship program. It is one thing to for taxpayers to assume 
management for a well-executed sequestration project, and something 
else entirely to relieve the risk of liability from an operator who has 
created a project that presents significant risks.
    s. 1013 emulates the private sector approach to liability risk 
  management and sets the stage for a private sector solution in the 
                               long-term
    The programs established by S. 1013 would function much like 
private insurance and other financial market instruments: developers 
are free to apply or not to apply; risk management assistance is based 
on a contract; the program has what I would call ``underwriting 
standards'' designed to minimize risk; there are exclusions that ensure 
that the risks of certain types of damages are borne by the operator 
alone; risk is pooled and participants pay a fees commensurate with the 
risk profiles of their projects. (It is important to note, however, 
that fees based on discounting future costs to present values will not 
be commensurate with the risk if the fees are deposited into the 
Treasury as miscellaneous receipts, as is proposed by S. 1013 in its 
current form, rather than being invested in order to grow at a rate 
equal to the discount rate used to calculate the present value).
    By establishing programs similar to risk management models that 
exist in the marketplace and by restricting the programs to a limited 
number of early projects, S. 1013 should encourage the development of 
market-based solutions to the emerging CCS industry's need to spread 
risk at a reasonable cost.
                  assisting state regulatory agencies
    EDF is pleased that the bill establishes grants to state agencies 
for employee training purposes. CCS projects raise a number of new 
regulatory issues and federal assistance in helping to educate state 
agencies regarding these issues is important. Although this particular 
bill may not be the right vehicle, we encourage Congress also to go 
beyond training assistance and provide more financial assistance than 
is being provided currently for state permitting and enforcement 
activity. The Ground Water Protection Council has estimated that 
implementation of CCS rules under the Underground Injection Control 
program it will increase state regulatory costs by several tens of 
millions of dollars per year.
                               conclusion
    In conclusion, I would again like to commend the Chairman and the 
co-sponsors for bringing this measure forward. It is sound approach to 
an important policy challenge. We look forward to continuing to work 
with you on this matter in the future.

    The Chairman. Thank you very much.
    Ms. Trabucchi, thank you for being here.

STATEMENT OF CHIARA TRABUCCHI, PRINCIPAL, INDUSTRIAL ECONOMICS, 
                      INC., CAMBRIDGE, MA

    Ms. Trabucchi. Thank you. Chairman Bingaman, members of the 
committee, thank you for introducing S. 1013 and for the 
invitation to testify at today's hearing.
    I'm a principal with Industrial Economics Incorporated 
located in Cambridge, Massachusetts. My expertise relevant to 
this matter is in financial insurance and long term indemnity 
models. My remarks today focus on the financial insurance and 
indemnification framework proposed by the bill and specifically 
on the assessment, collection and use of fees for CCS 
developers.
    Firms seeking investment capital to finance business 
ventures including CCS must demonstrate the ability to assume 
and manage risks inherent to the venture. By doing so the firm 
is able to assure investors whether private or public that the 
value of their investment will not erode. In fact, with time 
will gain value. In the case of CCS the very long time horizon 
and the use of taxpayer dollars demands a financial insurance 
structure that blends the strength of private and public risk 
sharing.
    To be effective a financial insurance structure that 
implements a private/public risk sharing as that proposed in 
the bill should achieve four clear goals.
    First, it should ensure funds are adequate when needed.
    Second, it should ensure these funds are readily accessible 
when needed.
    Third, it should establish minimum standards for companies 
that choose to self insure or for financial institutions 
managing funds or underwriting risk.
    Fourth, it should ensure continuity of financial assurances 
when ownership of sites is transferred.
    The long term indemnity model proposed in S. 1013 is a 
notable step forward in achieving these goals. Appropriately 
limits indemnification to certain types of damages. In my view 
if the intent of S. 1013 is to establish a financial assurance 
framework that insures sufficient resources are available to 
pay for long term stewardship at the time ownership of the 
demonstration projects is transferred then the following 
elements of the bill would benefit from additional 
clarification and should not be left to interpretation.
    First, in the section addressing collection of fees in the 
use of net present value analysis the amount of fees assessed 
and collected should be based on the net present value of 
probable damages arising from each demonstration project. 
Simply stated the amount of money collected from each CCS 
developer should clearly correlate to the amount of money that 
may need to be paid in the future once ownership of their 
specific site is transferred. The analytic tools exist to 
estimate dollar values for potential damages from CCS and are 
routinely used by experts in financial and natural resource 
economics.
    Second, this section also should require the design of an 
adjustable fee structure whereby the CCS developer pays a risk 
adjusted, site specific fee that is reassessed as actual site 
specific monitoring, measuring and verification data become 
available.
    Third, in the section addressing use of fees consistent 
with basing fees on a net present value analysis the fees 
collected should not be deposited in the Treasury and credited 
to miscellaneous receipts. Rather the fees should be set aside 
in a dedicated interest bearing trust fund similar to other 
financial assurance models legislated by Congress. Otherwise 
the fees collected may disappear into the Treasury resulting in 
an intergenerational transfer of costs to future taxpayers.
    In my view clarifying the language of S. 1013, as I have 
suggested, will help to ensure the continuity of financial 
assurances for long term stewardship, offer a measure of 
financial certainty to the developers of CCS demonstration 
projects and send a positive signal to the private capital 
markets interested in investing in CCS technology.
    My written testimony elaborates on these areas and 
highlights my views with respect to other elements of the 
financial assurance and indemnification structure proposed by 
S. 1013. Thank you.
    [The prepared statement of Ms. Trabucchi follows:]

Prepared Statement of Chiara Trabucchi, Principal, Industrial Economics 
                          Inc., Cambridge, MA
                                summary
    Firms seeking investment capital to finance business ventures, 
including CCS, must demonstrate the ability to assume and manage risks 
inherent to the venture. By doing so, the firm is able to assure 
investors, whether private or public, that the value of their 
investment will not erode, and with time, will gain value.
    In the case of CCS, the very long time horizon and the use of 
taxpayer dollars demands a financial assurance structure that 
adequately protects the private and public investor.
    To be effective, a financial assurance structure that implements 
private--public risk sharing should achieve four clear goals: (1) 
Ensure funds are adequate, when needed; (2) Ensure these funds are 
readily accessible, when needed; (3) Establish minimum standards for 
financial institutions providing funds or underwriting risk; and (4) 
Ensure continuity of financial assurances, when ownership of sites is 
transferred.
    The long-term indemnity model proposed in Senate Bill 1013 is a 
notable step forward in achieving these goals, and appropriately limits 
indemnification to certain types of damages.
    However, if the intent of Senate Bill 1013 is to establish a 
financial assurance structure that ensures sufficient resources are 
available to pay for long-term stewardship at the time ownership of the 
demonstration projects is transferred, then the following elements of 
the Bill would benefit from additional clarification:

          1. In the section addressing Collection of Fees and the use 
        of Net Present Value analysis, the amount of fees assessed and 
        collected should be based on the Net Present Value of probable 
        damages arising from each demonstration project. The analytic 
        tools exist to estimate dollar values for potential damages and 
        are routinely used by firms expert in financial and natural 
        resource economics.
          2. This section also should require the design of an 
        adjustable fee structure, whereby the CCS developer pays a 
        risk-adjusted, site-specific fee that is reassessed as actual 
        site-specific monitoring, measuring and verification data 
        become available.
          3. In the section addressing Use of Fees, consistent with 
        basing fees on Net Present Value analysis, the fees collected 
        should not be deposited in the Treasury and credited to 
        miscellaneous receipts. Rather, the fees should be set aside in 
        a dedicated, interest-bearing Trust Fund similar to other 
        financial assurance models legislated by Congress. Otherwise, 
        the fees collected may disappear into the Treasury, resulting 
        in an inter-generational cost to future taxpayers.
          4. The same financial assurance provisions should exist 
        regardless of whether the CCS demonstration project is sited on 
        private lands, public lands or tribal lands.

    In my view, clarifying the language of Senate Bill 1013 as I have 
suggested will help ensure continuity of financial assurances for long 
term stewardship.
                              introduction
    Thank you for the opportunity to testify in today's legislative 
hearing on Senate Bill 1013, Department of Energy Carbon Capture and 
Sequestration Program Amendments Act of 2009. I am a Principal with 
Industrial Economics Incorporated in Cambridge, Massachusetts. My 
expertise is in finance and economics, with specific focus on financial 
assurance frameworks and financial indemnity models. Founded in 1981, 
Industrial Economics is a privately-owned professional services firm 
expert in the areas of financial and natural resource economics. The 
clients of the firm span the public and private sectors.
    The focus of my testimony is on the financial management and 
indemnification framework proposed by Senate Bill 1013. Below, I offer 
my overall assessment of Senate Bill 1013, I highlight areas of the 
Bill with which I agree, and offer suggestions for consideration by the 
Committee. These suggestions are based on the language proposed in 
Senate Bill 1013, and the Bill's intended objective of fostering early 
mover deployment of no more than 10 Carbon Capture and Sequestration 
(herinafter CCS) demonstration projects.
    The sections that follow map to the provisions proposed by Senate 
Bill 1013. Where appropriate, I highlight elements of the proposed 
language that are well designed; and I offer suggestions where the 
language of Senate Bill 1013 might be clarified or improved.
          overview. the importance of financial responsibility
    Firms seeking investment capital to finance business ventures must 
demonstrate the ability to assume and manage risks inherent to the 
venture. By doing so, the firm is able to assure investors, whether 
private or public, that the value of their investment will not erode, 
and with time, will gain value. Financing CCS ventures requires a long-
term capital horizon, and therefore investors are likely to have a low 
tolerance for risks. Under traditional financing models, investors 
require that risks be bounded, quantified and accounted for either 
directly as an expense, or indirectly through third-party financial 
instruments (letters of credit, surety bonds, insurance, to name a 
few).
    The use of taxpayer dollars and the very long time horizon 
associated with CCS--one which may extend beyond the natural life of 
the corporate entity undertaking the demonstration project--demands a 
financial management solution that blends the strengths of private and 
public risk sharing. To be effective, a financial assurance structure 
that implements a private--public risk sharing should achieve four 
clear goals:

          (1) Ensure funds are adequate, when needed;
          (2) Ensure these funds are readily accessible, when needed;
          (3) Establish minimum standards for financial institutions 
        providing funds or underwriting risk; and
          (4) Ensure continuity of financial assurances, when ownership 
        of sites is transferred.

    To the degree society wishes to reduce greenhouse gas emissions, 
and the portfolio of emission reduction technologies includes CCS, then 
an effective financial assurance and indemnification framework will 
balance the four above-listed goals with needed incentives to foster 
the safe deployment of a limited number of early mover, demonstration 
projects.
    If modified as I suggest below, the design of the financial 
assurance framework and the implementation of private--public risk 
sharing as proposed in Senate Bill 1013 should accomplish these goals.
                       project selection criteria
    The science-based criteria and provisions for project selection as 
proposed by Senate Bill 1013 are necessary but not sufficient to 
underpin the financial management structure defined in later sections 
of Senate Bill 1013. Additional provisions requiring the explicit 
evaluation of potential human health and environmental impacts from a 
financial perspective--deriving expected loss values with a clear 
understanding of the statistical range of possible outcomes--are needed 
for each proposed demonstration project.
    The outputs of these evaluations will achieve two objectives.
    First, they will help the implementing agency assess competitive 
bids for demonstration projects, and make an informed decision as to 
the potential financial risk posed by each demonstration project.
    Second, they will provide an appropriate basis to calculate the 
amount of financial assurance that should be set aside by the 
individual CCS developer.
               terms and conditions (financial assurance)
    In my view, as proposed by Senate Bill 1013, the CCS developer 
should remain financially responsible for events that occur during the 
operating lifecycle of the CCS project, and for a defined period post-
injection. Specifically, financial assurances should be secured and 
maintained by the developer of the CCS demonstration project until such 
time as title to the site is transferred and accepted by the 
implementing Federal agency. In this way, the Bill provides incentives 
for CCS developers to properly operate and maintain their sites, 
limiting the potential for future damages. Firms are more likely to 
undertake design and operating decisions that minimize environmental 
(and remediation) costs, if they are held financially accountable.
    Further, maximum flexibility should be afforded to developers of 
the early mover demonstration projects in selecting the financial 
instruments that may be used, including but not limited to trust funds, 
letters of credit, surety bonds, insurance, and self-insurance through 
a corporate financial test or corporate guarantee, or any combination 
thereof. The array of acceptable financial instruments must ensure that 
funds are adequate if and when needed, and readily accessible to pay 
for delineated activities. For this reason, minimum standards are 
necessary for financial institutions securing funds or underwriting CCS 
risks.
                       indemnification agreements
Exception for Gross Negligence and Intentional Misconduct
    In my opinion, Senate Bill 1013 appropriately limits 
indemnification to certain types of damages. The exception provided in 
Senate Bill 1013 for gross negligence and intentional misconduct is 
important, particularly as it relates to fraud and misrepresentation of 
site (monitoring, measuring and verification) data. The importance of 
this exception can not be overemphasized, because these data likely 
will be used to underpin financial assurances and fee calculations.
Collection of Fees
    I believe it is appropriate to assess and collect fees from the CCS 
developer to finance the cost of long-term stewardship. In my view, the 
language proposed by Senate Bill 1013 should be clarified to ensure 
that the amount of fees collected is not arbitrary or based on a fixed 
rate for all sites. Establishing a blanket fixed fee to be paid by all 
CCS developers regardless of their individual site characteristics, 
operational methods and potential for consequences results in an 
inefficient use of available resources which otherwise could be 
invested for productive economic purposes. From a financial 
perspective, establishing a fixed rate that is paid by all CCS 
developers results in some developers paying more, and others less, 
than their fair share, because of differences in site attributes. 
Further, without strong oversight regarding site selection and fund 
management, and a clear process by which the amount of fees collected 
are periodically evaluated against the risk profiles of pooled sites, 
there is no reason to believe that the amount of funds collected will 
map to the actual financial resources needed to address long-term care 
expenses and delimited compensatory damages.
    If the intent of Senate Bill 1013 is to ensure a fee structure 
whereby the CCS developer pays a risk-adjusted, site-specific fee, then 
additional clarifying language in the section of the Bill that 
addresses the criteria for determining the amount of the fee to be 
collected is necessary. In my opinion, this fee should be based on the 
Net Present Value of the future expected losses for each individual 
demonstration project. Probable loss scenarios can be derived from each 
project's site characterization and risk assessment plans. These 
analyses provide an indication of `how bad it could get' if an adverse 
event related to a CCS project were to occur, as well as a measure of 
the amount of damages that might be required for remediation and to 
compensate for harm or injury.
    The use of Net Present Value analysis, as proposed in Senate Bill 
1013, is accepted practice for funds management within the financial 
community. The analytic tools exist to estimate the expected range of 
dollar values for potential damages. Similar tools are used by: (1) 
firms, such as insurers, in the risk management industry; (2) firms in 
the financial sector; and (3) firms with expertise in human health and 
natural resource economics.
    Additional clarifying language is warranted with respect to the 
timing of when such fees will be paid by the CCS developer. To ensure 
continuity of financial assurance during active site injection, 
postinjection, and through long-term stewardship, the amount of fees 
collected from the CCS developer should be established either as an up-
front payment or as a payment over time during the operating 
lifecycle--the period of active injection--of the demonstration 
project. If the intent of Senate Bill 1013 is not to delay the 
collection of fees until the end of the project, when there is the 
danger that the CCS developer may not have the resources available to 
pay the fees, or until an event or claim arises, then the language of 
the Bill should clearly state this. Provisions should be made at the 
outset of the demonstration project for the possibility of future 
bankruptcy or financial distress of the developer of the CCS 
demonstration project.
    As the provisions proposed by Senate Bill 1013 relate to a limited 
number of demonstration projects, and the public is assuming a measure 
of financial risk, the fees should be reassessed as information about 
the risk profiles become available. Practical reality should inform the 
application of financial theory. For example, if actual site 
monitoring, measuring and verification data demonstrate a declining 
risk profile and a reduced dollar value of future expected loss, the 
Net Present Value calculation underpinning the fee collection should be 
adjusted to reflect this situation, and the CCS developer should pay 
less in fees. Overfunding a long-term financial structure benefits 
neither the private sector nor the public sector. However, the inverse 
is also true--if monitoring, measuring and verification data suggest an 
increasing risk profile--the fees assessed should reflect the 
incremental increase in potential harm that may arise from the 
occurrence of an adverse event.
    Establishing an adjustable fee structure that is based on the 
results of actual monitoring, measuring and verification data ensures 
that the CCS developer is rewarded for design and operating decisions 
that minimize future risk, and by extension future loss. Further, 
underpinning the financial management structure proposed by Senate Bill 
1013 with an adjustable fee structure that reflects the evolution of 
site risks over time ensures that the financial instruments used for 
purposes of financial assurance can be scaled up or down in response to 
site-specific differences.
    Analyses underpinning the Net Present Value calculation proposed by 
Senate Bill 1013, and the determination of how much to collect in fees, 
should be developed prior to entering into an indemnification 
agreement. These analyses should be transparent, identifying key 
assumptions regarding the timing of probable payments and an 
appropriate risk-adjusted discount rate. The public should know what it 
is financing, especially if there is the expectation that these fees 
will be passed through to end consumers in the form of increased energy 
rates. Further, to the degree other projects (beyond the early mover 
demonstration projects) come on-line, the data generated as part of 
these early mover efforts should inform the financial assurances and 
design of financial management strategies for long-term stewardship of 
subsequent projects.
 use of fees (net present value and the importance of funds management)
    In my view, Net Present Value analysis should be used to underpin 
the financial management framework proposed in Senate Bill 1013. 
However, Net Present Value analysis presumes that money set aside today 
will earn interest and gain value over time. Thus, the use of Net 
Present Value analysis is effective only if the money that is collected 
is set aside in a dedicated, interest-bearing account, and does not 
form part of the miscellaneous receipts of the general Treasury, as 
currently proposed by Senate Bill 1013. Clarifying language is 
warranted in the Bill if, in fact, the expectation is that fees 
collected from developers of CCS demonstration projects will be set 
aside in a dedicated account. In the absence of doing so, the fees 
collected may disappear into the Treasury, and result in an inter-
generational transfer of costs to future tax payers, if claims are made 
in the future and the fees collected are not set aside and allowed to 
gain value.
    Based on my experience with financial assurance frameworks, and 
other long-term indemnity models legislated by Congress, the fees 
collected from developers of CCS demonstration projects should be set 
aside in a dedicated, interest-bearing account that generates a rate of 
return at least equal to the rate of inflation. Specifically, the fees 
collected from CCS developers should be deposited in a dedicated fund 
defined by Senate Bill 1013 as a ``Fund'' or ``Trust Fund'' for 
purposes of paying claims and monitoring costs arising after transfer 
and acceptance of title of the CCS demonstration projects by the 
Federal government. Conforming legislation establishing the Fund under 
Title 26, Subtitle I, Chapter 98, subchapter A of the Internal Revenue 
Code is necessary.\1\ Duty for managing investments collected and 
deposited in the Fund should be the purview of the Department of the 
Treasury. The portion of funds vested in the Fund that is not required 
to meet annual withdrawals should be invested in interest-bearing 
obligations of the United States.\2\ Other long-term liability and 
federal indemnity models, including the Hazardous Substances 
Superfund,\3\ the Oil Spill Liability Trust Fund,\4\ and the Harbor 
Maintenance Trust Fund,\5\ to name a few, adopt a similar investment 
strategy. Further, the Secretary of the Treasury should rely on the 
implementing agency, as established by Senate Bill 1013, to provide 
information on the annual funding needs of the program, either as it 
may relate to the payment of claims following acceptance of title to 
the CCS demonstration project, or for purposes of long-term monitoring 
activities.
---------------------------------------------------------------------------
    \1\ See 26 U.S.C. 9501 through 26 U.S.C. 9510 for dedicated Trust 
Funds established by the federal government under the Internal Revenue 
Code.
    \2\ 26 U.S.C. 9602
    \3\ See Comprehensive Environmental Response, Compensation, and 
Liability Act Sec.  221, 42 U.S.C. 9631 (2007), Superfund Amendments 
and Reauthorization Act Sec.  517, 42 U.S.C. 9601(11) (2006), 26 U.S.C. 
9507 (Hazardous Substance Superfund).
    \4\ See Oil Pollution Act Sec.  1001(11), 33 U.S.C. 2701(11) 
(2007). 26 U.S.C. 9509 (Oil Spill Liability Trust Fund).
    \5\ See Act of May 13, 1954 (commonly referred to as the ``St. 
Lawrence Seaway Act'') Sec.  13(a), 33 U.S.C. 988(a). Water Resources 
Development Act Sec.  210(a), 33 U.S.C. 2238(a) (2007). 26 U.S.C. 9505 
(Harbor Maintenance Trust Fund).
---------------------------------------------------------------------------
    Ensuring that the language of Senate Bill 1013 clearly articulates 
the intent of Congress in assessing, collecting and using fees from the 
developers of CCS demonstration projects will help to avoid future 
litigation over how much should have been collected in fees, how much 
was collected in fees, and what happened to the fees that were 
collected.
                              federal land
    The same financial and legal provisions, with respect to financial 
assurances and indemnification, should exist regardless of whether the 
CCS demonstration project is sited on private lands, public lands or 
tribal lands. The failure to establish the same financial provisions 
for demonstration projects sited on public or tribal lands as for those 
sited on private lands may result in: (1) poor operating decisions and 
lack of appropriate site selection, because the project developer is 
not held financially accountable for its business decisions; and/or (2) 
provide an unintended subsidy or competitive market advantage to 
developers of demonstration projects on public or tribal lands.
                            training program
    To the degree authority for financial management or investment of 
fees collected under Senate Bill 1013 is transferred to a federal 
agency other than the Treasury Department, appropriate training 
programs in financial and economic analysis should be provided.
                               conclusion
    The use of tax payer dollars and the very long time horizon 
associated with CCS--one which may extend beyond the natural life of 
the corporate entity undertaking the demonstration project--demands a 
financial assurance structure that blends the strengths of private and 
public financing and risk management tools. In my view, a financial 
assurance structure that successfully implements private--public risk 
sharing should achieve four clear goals:

          (1) Ensure funds are adequate, when needed;
          (2) Ensure these funds are readily accessible, when needed;
          (3) Establish minimum standards for financial institutions 
        providing funds or underwriting risk; and
          (4) Ensure continuity of financial assurances, when ownership 
        of sites is transferred.

    To the degree society wishes to reduce greenhouse gas emissions, 
and the portfolio of emission reduction technologies includes CCS, then 
an effective financial assurance and indemnification framework will 
balance the above-listed goals with needed incentives to foster the 
safe deployment of a limited number of early mover, demonstration 
projects. The long-term indemnity model proposed in Senate Bill 1013 is 
a step forward in accomplishing this objective.
    However, if the intent of Senate Bill 1013 is also to establish a 
financial assurance structure that ensures sufficient funds are 
available to pay for long-term stewardship at the time ownership of the 
demonstration projects is transferred, then the Bill would benefit from 
the modifications that I outline above. Finally, ensuring that the 
language of Senate Bill 1013 clearly articulates the intent of Congress 
in assessing, collecting and using fees from the developers of CCS 
demonstration projects will help to avoid future litigation.

    The Chairman. Thank you very much. I think you all have 
provided very useful testimony. Let me just ask any of you that 
would want to respond.
    One of the points Representative Lubnau made was that we 
need to be more specific about what we do with unscrupulous 
operators of CCS projects. Is that something that makes sense? 
Something we need to be addressing in more specific terms?
    If so, what do we do if an operator of a CCS project goes 
belly up or leaves town or becomes untrustworthy. What should 
we put in legislation to solve that problem? Mr. Anderson, Mr. 
Moor, do either of you have a thought about that?
    Mr. Anderson. We've thought a lot about it. My first part 
of my answer would be one of my final statements. Don't be 
quick to throw away the current liability system. That is 
something we have that encourages good behavior.
    Don't be too quick to relieve people of liability on a 
permanent basis unless you've identified a genuine problem with 
capital formation and targeted a policy response to that. The 
insurance companies and the people who loan money to projects, 
invest in projects are a great ally on this. People who, in the 
private sector, are not likely to invest lots and lots of money 
unless they have some confidence, a lot of confidence in the 
quality of the operations.
    Conversely to the extent of the investment community 
doesn't have confidence that an operator is going to be a good 
operator, that operator is going to have to pay more for its 
capital and that's a good thing.
    The Chairman. Mr. Moor, did you have a thought?
    Mr. Moor. Yes, Mr. Chairman. I associate myself with 
Scott's remarks. We--this is, I think, why we've concentrated 
on the mutualization model. Because we believe that the 
mechanisms inherent in that kind of model can help guard 
against the rogue activity and reassessment of risk associated 
with either bad behavior or a bad risk profile can be guarded 
against by using the forces of the markets.
    We've had some concern about the use of trust funds where 
it would simply be as, I think we've called it, Joe's Crab 
Shack and CO2 sequestration operation would simply 
show up and begin to pay the fee and say we're in who can stop 
us. Whereas in mutualization and insurance with insurance 
products, there's a certain level of guardianship of capital 
that should keep those kinds of operators out of the business.
    Ms. Trabucchi. Can I actually offer something else?
    The Chairman. Yes, please.
    Ms. Trabucchi. I think it's extremely important as you 
consider this bill and in my view developers of CCS projects 
should remain fully financially responsible during the 
operating act of injection period of the project and for a 
defined period post injection. In so doing you're rendering 
them financially accountable for their actions. That will 
foster sound site selection, sound operating decisions because 
they're the ones who remain responsible.
    So any thinking about loan term indemnity really should be 
about long term stewardship. It shouldn't take place during the 
operational period.
    The Chairman. Ok. Let me call on Senator Corker for any 
questions he has.
    Senator Corker. Ok. Mr. Chairman, first of all these 
witnesses are outstanding. They're very concise and understand 
well. I thank each of you for your testimony.
    While I have some concerns about the viability of CCS I 
want to thank you for offering this title. I strongly support 
us researching in this area and developing standards. I just 
have concerns about the viability.
    But I realize coal is a very, very important part of what 
we do power production wise. I think we need to be numbers of 
things to figure out a way to solve this issue. But it's always 
nice to get an emperor check on all those involved as to its 
reality.
    Let me just--as it relates to the Southern Company. When 
you--one of the reasons that you use coal is its abundance and 
in essence its lesser expense if you will, in delivering power. 
When you start to fathom all of the expenses required with 
capture, sequestration, pumping, insurance, all of those 
things, hiring Mr. Tombari's great firm to do this.
    I mean at the end of the day does it make it all begin to 
look at nuclear and other kinds of things. Is it going to 
render coal basically--I mean is this a transitional issue that 
you see your company, in essence, moving away from coal in 
general and using CCS in the interim as a transitional way of 
dealing with it?
    Mr. Moor. Thank you, Senator Corker. I think there will be 
changes in generation mix. We're committed to programs that 
will increase our nuclear utilization. We're looking at two 
new, possible nuclear units in the Southeast. We know that TVA 
is likewise focused on that.
    Our commitment to IGCC is in part a statement that we 
believe coal has to be a part of the mix. That is an approach 
that our CEO has taken across the board in saying we can't 
throw anything out. We've got to have it all.
    We have a number of very valuable, very efficient, very 
well regulated from a pollutant standpoint. Relatively new coal 
fired facilities that need to be preserved. If we can retrofit 
them with technology there may be, as I said, two happy 
coincidences for us.
    One, we've been blessed with some good geology in the 
southern part of the service territory that we have some saline 
aquifers that are probably as most people, and maybe John will 
back me up on this, are some of the most attractive real estate 
for doing sequestration projects. So that works I think in our 
favor.
    The other thing is the Southeastern oil fields are in need 
of CO2. There's a demand for it. Thus when we did 
the IGCC look at Mississippi we could look down the road and 
see that some of the oil companies were interested in our 
CO2. So the combined economic benefit is attractive.
    We're like TVA in this regard. We've seen this resource do 
amazing things for our region. Hydro and coal have made the 
Southeast.
    The Southeast is a bastion of economic development in a 
country that desperately needs production and good jobs. To see 
that disappear and not fight the good fight for a fuel that has 
been so valuable and important for developing our region would 
seem to be, to us, the wrong thing to do. So we're going to 
continue to pursue it.
    We're continuing to pursue these technological approaches 
and efforts like this because we believe that it has to be a 
combined effort. We are in essence sending a man to the moon 
through the CCS effort. We've got to do it together. It's got 
to be a collaborative effort with the environmental community 
and public citizenry. We're going to pursue it hard.
    Senator Corker. Would it be your sense that, for the sake 
of our country, not just a particular region, that we need to 
be working equally hard, if not harder toward recycling of 
nuclear fuel so that we have a carbon free way of producing 
power in this country. If you were going to weight our efforts 
toward CCS or toward recycling nuclear fuel and being serious 
about building 100 new nuclear plants in the next 20 years 
which would you weigh toward?
    Mr. Moor. Beyond my pay grade, I will confess first. But I 
would say focusing on the coal side of the equation that the 
regional nature of the resource, the tremendous capital 
required for the investments in both of those technologies mean 
that whatever steps forward we take they're likely to be 
expensive. The region will feel the economic impact, not just 
the close in region, but the neighboring region because we 
exchange power with TVA. We exchange power with other partners 
in the Southeast.
    I think it's the decision of a lifetime. We're going to 
have to do it with a full and open process that let's everybody 
know what's about to happen. The Public Service Commissions 
have to understand that either one of these approaches is 
tremendously expensive.
    They've got to understand why we're doing it and what's 
motivating us for the good of the environment. But also the 
real consequences in terms of cost and they will be 
significant.
    Senator Corker. Ms. Trabucchi, You talked about the 
availability of cash. Your quiet statement about Federal 
Government here and how things disappear.
    [Laughter.]
    Senator Corker. But the availability of cash to pay claims 
is what you're talking about. Just give us a sense of the type 
of claims that one might envision in the way of damages. Mr. 
Tombari, if you have any thoughts since you're obviously an 
expert in this area.
    But for those of us who might think about some of the 
lingering liabilities. I mean, I don't know what CO2 
does to the underground as it relates to formations. I don't 
know what some of the liabilities are. But could you site a 
couple of examples where we, as citizens, might want to recover 
from a company like Mr. Tombari, what would the damages be?
    Ms. Trabucchi. Let me preface my remarks by saying that I'm 
not an attorney. So I wouldn't want to make a representation of 
what would be a legal claim. With that said, I could envision 
dollar damages that might involve natural resources, ground 
water contamination, aquifer contamination, endangered species 
perhaps.
    I think that, and again I'm not a scientific expert or an 
engineering expert. So I can't comment on whether when 
CO2 travels what might happen to that plume. But I 
think there are analyses that can be done that look at the 
different receptors which I think is part of what you're 
getting at with your question.
    The transport mechanisms and if there should be an event 
how it would adversely impact those receptors through harm or 
injury. Then there are analyses that you can do to place a 
dollar value on that.
    Senator Corker. Mr. Tombari, any?
    Mr. Tombari. Yes.
    Senator Corker. What is it that, in your great research and 
preparedness for this, what are the things that you worry about 
happening down the road? You want to pass the liability on 
after the CO2 has kind of balanced itself. I didn't 
use the right terminology I know.
    But what are the things in the interim that concern you as 
it relates to things that could go wrong?
    Mr. Tombari. Talking about ``down the road.'' I think it's 
important to realize that the challenges do drop off. The 
challenges are higher during the operational phase and the 
equilibrium.
    But at the point in time when we're asking for stewardship 
there really is minimal expense left to do care and also 
absolute minimal challenges. So we don't anticipate anything 
dramatic being left at that point in time.
    I'd also like to point out that once again we're talking 
about carbon dioxide which is something we breathe out. It's 
something that's in your soda pop. So that's my thoughts on 
that. Thank you.
    Senator Corker. So not very damaging.
    Mr. Tombari. No.
    Senator Corker. Mr. Chairman, thank you and thank you all.
    The Chairman. Thank you very much. Thank you all for being 
here. This is very useful testimony.
    Let me particularly thank Allison Anderson who has worked 
so hard on this legislation. She's done a great job. We hope to 
take the suggestions we've heard here today and perhaps even 
make additional improvements.
    Thank you again. That will conclude our hearing.
    [Whereupon, at 4:28 p.m. the hearing was adjourned.]

    [The following statement was received for the record.]

                              The State of Wyoming,
                                    Office of the Governor,
                                        Cheyenne, WY, May 19, 2009.
Hon. Jeff Bingaman,
Chairman, Senate Energy and Natural Resources Committee, 304 Dirksen 
        Office Building, Washington, DC.
    Dear Senator Bingaman, I am writing to lend my strong support to 
your bill, S.1013, ``Department of Energy--Carbon Capture and 
Sequestration Program Amendments Act of 2009''. I sincerely appreciate 
your solid leadership in moving this important legislation forward.
    As we have discussed, the ability to sequester carbon dioxide 
(CO2) is very important to Wyoming and the country. It is 
becoming a pre-condition to continued use of coal in the United States. 
For any number of reasons, not the least of which is national security, 
we should not turn our back on this vital indigenous energy resource.
    In Wyoming, we will continue to work on all the issues surrounding 
CO2sequestration. Our technical and research work is 
proceeding at a strong pace. We have identified several promising 
candidate geological formations to store CO2. We have also 
established the legal framework for pore space ownership and created a 
regulatory regime to permit and safely manage CO2 
sequestration. However, the largest impediment to progress in Wyoming 
is the issue of long-term liability for the sequestered CO2. 
This is why your effort is so critical.
    Addressing liability for ten large scale injection projects is an 
elegant way to move forward in both scientific understanding of the 
sequestration process and creating the experience base for sound 
financial and regulatory assessment. If we are serious about 
CO2 sequestration in the United States, we need to marry 
scientific understanding with rigorous financial analysis to establish 
the actual risk profile of CO2 in the ground. This is the 
pathway to a rational and efficient long-teim insurance solution.
    I believe you have struck exactly the right balance in the manner 
you have written the bill. Evidence of this is the bipartisan support 
represented by the co-sponsorship of this legislation by Wyoming 
Senator John Banasso.
    Again, thank you for your leadership on this and other important 
energy issues that our Nation must address. Please know that I stand 
ready to support your efforts on this legislation.
            Best regards,
                                          Dave Freudenthal,
                                                          Governor.
                                APPENDIX

                   Responses to Additional Questions

                              ----------                              

                      State of Wyoming Legislature,
                                         House District 31,
                                                      May 19, 2009.
Hon. Jeff Bingaman,
U.S. Senate.
    Dear Senator Bingaman: Thank you for the opportunity to testify in 
front of the United States Senate regarding S. 1013. Upon my return to 
Wyoming, I told my wife I was impressed how knowledgeable, interested 
and well-informed the Senate Energy Committee is on issues related to 
energy and the environment. In consultation with Ian Shaw from the 
Wyoming Legislative Service Office, and Wyoming Rep. Mary Throne (D--
Laramie County), I have prepared the following answers.
    Question 1. I think that the point that you make concerning the 
termination or substitution of the storage site operator is a good idea 
when they are cited as being negligent in their duties. How would you 
go about finding and designating a new field operator should the need 
arise? Is this something that you have worked on at the state level in 
Wyoming?
    Answer. Wyoming addresses this issue two ways: 1) through the 
permitting and regulatory process; and 2) through the unitization 
process. The United States Government has the ability to deal with the 
unscrupulous or inept operators in much the same way--given the 
appropriate regulatory framework. We found the Underground Injection 
Control (UIC) permitting process was inadequate for regulation of 
carbon sequestration in total. As a result, we passed a comprehensive 
permitting process for carbon sequestration. The EPA is in the process 
of drafting regulations for permitting of UIC carbon sequestration 
operations. We believe the permit requirements, and most importantly, 
the entity providing the financial assurances for the permit as an 
enforcement arm outside the government. In that way, the provider of 
financial assurances acts as a free-market enforcement arm of the state 
regulations.
    However, as a fail-safe to the process we have created other 
alternatives. We can revoke the sequestration permit, and stop all 
activities. We have also provided for petition and removal of an 
operator pursuant to our unitization statutes. Any interested party (in 
the Scalia sense of interested) can petition the Wyoming Oil and Gas 
Conservation Commission for removal of the operator.
    I would suggest for the purposes of this legislation, that the DOE 
be authorized, by regulation, to enter into agreements with operators 
for long term operations, for the requirements for adequate financial 
assurances, and require a replacement operator be provided by the 
entity requiring the adequate financial assurances. Those contractual 
arrangements will relieve the United States Government from some of the 
burdens associated with sequestration site enforcement.
    Additionally, in the context of this legislation, it may be 
possible to provide a limited right of action for certain parties to 
petition for the removal of an operator, and the substitution of 
another qualified operator based upon a showing of a material breach of 
the agreements with the government. The key to the substitution of the 
operator revolves around the financial assurances demanded by the 
government at the outset. The more significant and iron-clad the 
financial assurances, the more likely the operator will comply with the 
requirements of the process.
    In Wyoming, violation of the permit is also a crime. I do not know 
how, in the context of this particular piece of legislation, 
criminalizing permit violation conduct will occur, but it might be a 
consideration of the committee.
    Question 2. In addressing unitization--what sorts of feedback did 
you receive in determining the 80%-20% ruling? Was there any opposition 
to the approach you used in your unitization law?
    Answer. I would like to say there was something magical in the 
selection of the 80/20 numbers. Unfortunately, we took the Wyoming Oil 
and Gas Unitization Statutes, and modified them to make them fit with 
carbon sequestration activities. The existing percentages in the oil 
and gas statutes were 80/20. Since no one objected to the percentages, 
we kept them.
    The only objection to the legislation was an argument by some 
environmental landowners, that by virtue of a unitization process, and 
granting the mineral owner dominance, we were giving the federal 
government more control over fee lands. Because the federal government 
owns so much of the pore space in Wyoming, it was perceived that the 
federal government would consent to unitization, take control of the 
unit, and overrun the surface owners in Wyoming.
    Wyoming landowners, as I imagine is the experience in New Mexico, 
are feeling ever growing frustration at the impingement on their 
property rights by mineral owners and the public entities. Any time a 
perceived impingement occurs, we see objections at the legislative 
level. As a result, Wyoming's legislation is designed so the fee 
surface owner has the most control over their lands, and the activities 
in or on their lands as possible. I urge the United States Government 
to lean that way. We have found that by becoming partners with the fee 
surface owners, our public is more amenable to geologic sequestration 
activities, and actually, in some sectors of the state, we are 
beginning to see a building excitement at the development of an 
entirely new industry in Wyoming.
    Thank you for the opportunity to address these questions. If you 
have any further questions, or you would like to discuss this matter 
further, please feel free to call. I am at your disposal.
            Yours very truly,
                                            Tom Lubnau, II,
                                      Wyoming State Representative.
                                 ______
                                 
       Responses of Karl Moor to Questions From Senator Bingaman
    Question 1. In your written testimony (pg 5--long term care) you 
stated that Southern Company feels that the best approach for this 
phase is a third-party caretaker for long-term maintenance of the wells 
and infrastructure. Yet in your following sentence you state that you 
don't feel a third-party contractor should handle the long term care in 
the commercial-scale deployment phase. Can you clarify what you mean by 
this?
    Answer. At Southern Company, we try to make a clear distinction 
between two aspects of ownership of closed sequestration sites. The 
first is small in scope, strictly the maintenance and upkeep of the 
infrastructure at the sequestration sites--the wells, the access to the 
wells (roads, etc.), and any monitoring equipment. The second aspect is 
the responsibility for any trespass, damages, remediation, and any 
other claims resulting from the injected CO2. Southern 
Company believes that transferring only the infrastructure maintenance 
to a third-party is an appropriate and realistic approach given the 
lack of commercial-scale CCS demonstrations and policy regulations. We 
understand that other approaches could be considered in the future, but 
the responsibility for any harm caused by the injected CO2 
should remain with the sequestration site operator/owner unless 
transferred by contract or other means. So, to be clear, in a 
commercial sequestration site, we propose that the well maintenance and 
any other infrastructure maintenance should be handled by a third-
party, but the liability for trespass, damages, remediation, and any 
other harm remain with the injecting parties which may be Southern 
Company or a third-party who has assumed liability under negotiated 
arrangement.
    Question 2. In the case of early mover projects, like those 
described in S.1013, the site operator stays involved until the site 
closure certification is issued by the secretary. It isn't until the 
site closure certification is issued that the government (or some 
government appointed entity) will step in and manages the sight. Is the 
view that is outlined in your testimony in conflict with the long-term 
care program stated in S.1013?
    Answer. Yes, for early mover projects, Southern Company would 
prefer an earlier involvement of the Department of Energy in helping 
those projects to manage risks. At present, the DOE only provides 
financial support and basic science research in support of CCS 
technology development. Our desire is for S. 1013 to provide protection 
through DOE for early movers during the operational phase of the CCS 
project. Our experience in early CCS projects shows that the private 
insurance providers today do not have enough information and/or 
experience to offer policies to site operators that can adequately 
cover the potential damages caused by an unforeseen event. This is part 
of our ``first movers paradox''--i.e., Southern Company is more 
concerned with the risks during the project's injection and 
stabilization phases than the long-term risk management (although we do 
see it as a future obligation that will have to be managed). My 
reference to Dr. Sally Benson's work at Stanford University in my 
written testimony is at the heart of this matter. As can be seen in the 
figure provided below, a typical CCS project risk profile will increase 
as CO2 is injected and continue to be at the highest levels 
during injection and for some time after that. In this view, the risk 
drops by almost half when time equal to about half of the injection 
period passes. The risk continues to drop as time proceeds.
    We think this is consistent with many other views of the potential 
risks of sequestration, that geological failures that allow 
CO2 to migrate outside of the desired confining zone would 
occur while injecting or shortly thereafter.
    It is my opinion that the bill would be more helpful in allowing 
companies like Southern Company to proceed with these early mover 
projects if they have some assistance in risk management for the 
injection and stabilization phases of these first projects. This 
approach would encourage projects which, in turn, would allow 
companies, like Southern Company, to gather information and more 
operational experience. This information and experience could be used 
by private insurance companies, industry mutual associations, and other 
entities to underwrite risk management instruments (primarily 
insurance) for all phases of commercial projects. Therefore, I would 
ask you to consider moving the involvement of the Department of Energy 
for these early mover projects to the beginning of the injection of 
CO2 phase, and not just after closure.
       Responses of Karl Moor to Questions From Senator Murkowski
                           the role of states
    It is my understanding that Southern Company is a member of the 
FutureGen alliance. In competing for the FutureGen site selection, both 
Illinois and Texas passed state laws to assume ownership of, and 
liability for, the injected CO2.
    Question 1. What is your opinion on the role of the states in terms 
of long-term stewardship of CCS sites, as compared to the federal role 
contemplated by S. 1013?
    Answer. I would first point out that the amount of CO2 
being captured and sequestered from the proposed FutureGen plant would 
be limited to only about 1 million tons per year. This is the prototype 
first mover plant and was established as a test bed for research 
activities. Commercial CCS plants would sequester between 2 million and 
5 million tons per year. It is not certain that these states would 
agree to the same role for multiple commercial projects.
    For infrastructure maintenance, there is a clear model in states 
with oil and gas production to manage abandoned wells, mostly through 
oil and gas boards. These operations are supported by charges to oil 
and gas operators through trust funds. We view CCS as a direct 
extension and recommend such organizations also oversee the wells and 
infrastructure of a closed sequestration site.
    As far as states accepting the responsibility for any trespass, 
damages, remediation, and any other harm, we would suggest that this is 
an issue where the states can independently decide if this is 
appropriate and necessary.
    The one issue for CO2 sequestration that is a state 
responsibility is in the determination of who owns the pore space where 
CO2 will be injected (surface owner or mineral rights owner 
or the public). Some states have begun addressing this issue, but the 
ability of a sequestration operator to efficiently gain access to the 
right to inject the CO2 underneath private property and the 
fair compensation to the rightful owner for that access is one of the 
most pressing issues for CCS. It would be helpful for Congress to 
consider incentives for individual states to make access to the pore 
space available and assign value to the use of that pore space. Beyond 
the issue of ownership is the need for condemnation similar to forced 
pooling which has been successfully applied in the development of oil 
and gas fields.
                       timing of indemnification
    S. 1013 is relatively ambiguous about the point at which the 
Secretary would make a decision on whether or not to indemnify the non-
federal participant in a demonstration project.
    Question 2a. Do you think this represents a potential difficulty in 
terms of negotiating participation in a federal demonstration project 
or is it not likely to represent a problem?
    Answer. Southern Company does recognize this ambiguity and the 
likely point of indemnification to be a potential problem for early 
mover projects. Our preferred risk management approach for commercial 
projects, the use of private and industry mutual insurance, is still a 
future option. These entities need real data and experience with the 
activity in question to be able to underwrite insurance coverage. The 
normal course of development would be to grow slowly both the 
sequestration industry and the related insurance coverage over several 
decades to reach a commercial position. With a need to accelerate the 
development of CCS, we feel that there is a need to have some 
assistance on these early mover projects to handle the risk management 
as CO2 starts to be injected and not just after the site is 
closed. At the same time, the experience from these sites will lead to 
information that will help the private and industry mutual insurance 
entities write the insurance coverage needed for companies to move 
forward with commercial projects. To speed the development process 
toward commercialization, we suggest that the Department of Energy 
indemnification begin with CO2 injection for these early 
mover projects assuming standards are met
    Question 2b. How would the absence of clarity on a Secretarial 
willingness to indemnify impact the non-federal participant's economic 
planning and decision-making associated with a large-scale (1 million 
tons plus, per year) demonstration project undertaken jointly with the 
federal government?
    Answer. With the entire responsibility for damages, remediation, 
and any harm being left with the early mover project team, the lack of 
assistance from DOE and the inability to purchase adequate insurance 
coverage at reasonable cost will certainly slow down and delay these 
projects. As we move toward injections of one million tons per years, 
some type of reasonable risk management instruments (whether insurance 
or DOE indemnification) will be necessary for these projects to go 
forward. As I noted in my written testimony, changing section (g)(2) of 
S. 1013 to state ``The Secretary shall agree . . . '' instead of ``may 
agree'' will provide the necessary clarity on this issue.
               options for advancing carbon sequestration
    The debate on domestic policies related to global climate change is 
still very much underway.
    Question 3. Absent a price on carbon, and in addition to the 
liability option that is under consideration in the context of S. 1013, 
what other measures should the Congress consider pursuing to expedite 
the development and deployment of carbon sequestration technologies?
    Answer. Carbon capture and sequestration is one of many approaches 
to provide electricity in a carbon-constrained future. Southern Company 
believes that use of a suite of technologies will be necessary to 
preserve economic growth and stability while decreasing emissions of 
CO2 to the atmosphere. Many economic models predict that 
electric generating companies, like Southern Company, would turn to 
natural gas combined cycle generating units in the near-term. This 
large-scale, nationwide switch from coal generation to natural gas 
generation would have many adverse consequences. Therefore, we believe 
coal needs to be competitive with natural gas but not overtaken by it 
because of cost concerns. As I state in my testimony, Southern Company 
believes that coal should and must remain part of the future generating 
options. Our work in CCS is not only to prove the viability of the 
technology, but also to improve the technology to make it more cost-
effective. Southern Company has been very active with the Department of 
Energy in helping to develop and demonstrate technologies for emissions 
reductions from coal power plant. We believe that the nation has 
benefited greatly from our partnership with DOE and those with other 
utilities, vendors, and research organization.
    Congress must continue to support and increase funding for CCS work 
that supports large-scale demonstrations and fundamental research and 
development for capture of CO2 from coal power plants. So 
first, we would propose that Congress needs to help this technology and 
the technologies of the future be accelerated to protect the nation's 
economy and those industries and individuals that rely on natural gas. 
Southern Company supports the concept of a ``wires charge'' on 
electricity paid into a fund to be used to support these activities as 
well.
    Secondly, we would encourage Congress to consider incentives to the 
many states to put into place ``model'' statues that would clarify the 
ownership of the pore space into which CO2 would be 
injected. At the same time, these state statues must balance the need 
for compensation of the pore space owner with the ability of 
sequestration operators to gain access to these formations thousands of 
feet below the ground surface.
    Finally, for sequestration, we would suggest that Congress address 
some of the ancillary issues associated with carbon sequestration. 
These include ensuring that any regulations of CO2 injection 
be flexible especially including the purity of the CO2 
stream injected underground. The applicability of CERCLA and RCRA to 
injected CO2 streams must be addressed. Obviously, the 
CO2 purity and the applicability of CERCLA and RCRA are 
linked together, making it more difficult to be flexible and protective 
at the same time.
                                 ______
                                 
      Responses of John Tombari to Questions From Senator Bingaman
    Question 1. Do you feel that we have technologies available today 
to adequately characterize a site for CCS and for long-term monitoring, 
while simultaneously reducing operating risks related to liability?
    Answer. Yes, technology is available today to adequately 
characterize a site and for long term monitoring. Technology is also 
available for operational and verification monitoring. Use of all of 
these in combination by a skilled person/company is what leads to 
simultaneously reducing the operating risk related to liability.
    Good site selection and detailed characterization (prior to 
injection) are the best ways to reduce operating risks related to 
liability. For the first ten projects, covered by this legislation, 
sites should be chosen that have the simplest characteristics and where 
the best characterization technologies can be deployed.
    Storage operators will need a deep understanding of the 
technologies available as well as experience with deploying these 
technologies. Only through this understanding and experience will they 
be able to properly control overall quality, safety and environmental 
impact.
    The best currently available technologies for characterizing the 
subsurface attributes of a site should be used and at a minimum 
include:

   High-resolution three dimensional (3-D) seismic over the 
        area of review (technology available).
   Multiple wells with the following:

          i. Cores (rock samples) recovered from both the injection 
        zone as well as the confining unit. (technology available)
          ii. Downhole fluid samples from the injection formation as 
        well as from overlying aquifers brought to the surface at 
        formation pressure. (technology available)
          iii. A comprehensive set of wireline logs including those 
        that help evaluate: mineralogy, porosity, permeability, 
        layering, fracture analysis, mechanical rock properties and 
        seismic calibration. (technology available)
          iv. Formation pressure testing and fracture gradient testing 
        (technology available)

   Integration of all the data into a single static shared-
        earth model and subsequently incorporated into a simulator for 
        estimating how the CO2 plume and pressure front may 
        evolve over time. (technology available)
   Construction of a geomechanical earth model to guide the 
        injection design and operations. This will help prevent damage 
        to the confining layer. (technology available)
   An analysis of the basin water system to evaluate the 
        impacts which might occur in overlying or surrounding 
        formations and/or fresh water aquifers. (technology available)
   Re-entry or evaluation of old wells that may be poorly 
        constructed and/or poorly plugged and might intersect the plume 
        of CO2. Included should be the use of tools with 
        full radial cement and corrosion coverage and that can detect 
        small channels in the cement (technology available.)

    These views are based on the current state of technology. Because 
of the long term nature of these projects, technology will continue to 
evolve. Liability can only be based on the current state of technology.
    While technology selection is important, the following human 
factors are equally, if not more, important for success:

   Properly trained people with prior reservoir management 
        experience.
   Best available data integration processes
   Proper and demonstrated risk management processes

    Question 2. Do you or your company feel that the impending 
Underground Injection Control (UIC) Program [under the Safe Drinking 
Water Act] rulemaking process being conducted by the EPA is rigorous 
enough for adequate site characterization of conversely overly 
stringent? Are there any changes that you/Schlumberger would recommend 
that would impact this legislation?
    Answer. The impending UIC Program rulemaking process being 
conducted by the EPA is rigorous enough for adequate site 
characterization.
    The EPA should diligently enforce the regulations pertaining to the 
evaluation of existing wellbores that may intersect the CO2 
plume, to minimize the potential for these wellbores to allow leakage. 
Similarly, the EPA should diligently enforce regulations on new well 
construction to provide for maximum safety and environmental 
protection.
    Question 3. You did no mention the need for liability program(s)--
do you or Schlumberger feel that a liability program is needed, in 
light of the long history that your company has had working in the 
subsurface? Are the liability concerns real? Are the ``risks'' for 
geological storage as great as project developers claim they are?
    Answer. Yes, Risk management programs including programs to manage 
liability risks, are important. These concerns are real. Claims of 
risks by potential project developers will vary based on the level of 
experience they have had with subsurface practices and technologies 
beyond those of pilot geologic storage projects.
    Included in the request for long-term stewardship for early 
projects is an implied request that once the site is transferred 
(subject to established acceptance criteria), the operator's liability 
exposure would end. Liability concerns also can be managed through:

   Proper attention by CO2 generators and regulators 
        to make sure that the site developer/operator is properly 
        qualified, has a history of safe subsurface operational 
        experience and has demonstrated an understanding of the best 
        available technologies.
   Proper site selection and detailed site characterization 
        prior to injection.
   Proper integrated monitoring that identifies CO2 
        and pressure plume locations and tracks the integrity of the 
        confining layer.
   The site developer/operator being responsible for both data 
        integration and risk and performance management practices so 
        that decisions are made using the best and most currently 
        available information.
   Periodic reviews of monitoring results compared to 
        predictions as well as reviews of the practices in use.
   Linking liability to the current state of technology at the 
        time commitments were made
     Responses of John Tombari to Questions From Senator Murkowski
                      operational characteristics
    Question 1. A typical car tire may be inflated to 40 or 50 pounds 
per square inch. In terms of hydraulic fracturing for oil and gas 
production, those activities take place at close to 8,000 pounds per 
square inch, but that pressure is ultimately released as the oil and 
gas is produced.
    By way of a comparison, can you share with us what the likely 
pressures would be for CO2 injections in a large-scale (1 
million or more tons injected per year) CCS operation, how long that 
pressure would be sustained, and whatever other differences between 
sequestration activities and enhanced oil and gas recovery through 
hydraulic fracturing or carbon dioxide injections that you think we 
should be aware of?
    Answer. To inject CO2 into a storage formation, there is 
an existing pressure that must be overcome in order to introduce the 
CO2. Once injection ceases, pressures will ultimately return 
to equilibrium. At the best of sites, this process will not require 
fracturing. Fracturing has been used by the oil and gas industry in 
specific circumstances to assist the movement of fluids in the rock. 
Fracturing requires overcoming both the existing downhole pressures and 
the additional pressure necessary to break the rock.
    It is likely that the CO2 will be injected above 1070 
psi because above this pressure the CO2 has a liquid-like 
density allowing for more CO2 to be injected per volume of 
pore space. The pressure will dissipate with distance from the 
injection point and it will dissipate over time depending on the 
boundary conditions and hydrogeologic properties of the storage 
formation. The boundary and hydrogeologic characteristics will need to 
be studied and understood prior to the start of injection. Technologies 
to do this are available.
    It is important to make CO2 pressure measurements using 
sensors placed deep in wells adjacent to the formation we are trying to 
inject the CO2 into. Sensors at the surface (near the 
wellheads or in the pipeline), though also important, are not adequate 
for this purpose.
    While pressure will vary with depth and formation properties it can 
be controlled through proper injection design and maintained safely 
below pressures that might damage the confining layer.
    Determining the pressure (fracture gradient) above which damage to 
the confining layer for a given site can occur, is one of the most 
important aspects of proper site characterization. The technologies for 
this are available. After characterization, constructing a proper 
geomechanical earth model using appropriate computer software enables 
managing pressure over time, and gives confidence that the pressure 
increases will not damage the confining layer
               options for advancing carbon sequestration
    Question 2. The debate on domestic policies related to global 
climate change is still very much underway.
    Absent a price on carbon, and in addition to the liability option 
that is under consideration in the context of S. 1013, what other 
measures should the Congress consider pursuing to expedite the 
development and deployment of carbon sequestration technologies?
    Answer. To expedite the development and deployment of carbon 
sequestration technologies, Congress should consider:

   Authorizing and funding the proper detailed characterization 
        of many of the existing potential storage sites throughout the 
        country. .This would permit:

    --Greater confidence in the distribution of storage sites 
            throughout the country and their proximity to large point 
            sources of CO2 emissions or to planned projects.
    --Better planning for distribution systems and/or pipelines.
    --Better development of storage related regulatory requirements.

   Having a single regulatory agency responsible for all CCS 
        regulations to add consistency to and to streamline processes.
   Federal guidance toward developing harmonious State laws 
        regarding property, access, trespass, and liability.
   Providing for the development of CCS training/degree/
        certification programs.
       Response of John Tombari to Question From Senator Stabenow
    Question 1. Mr. Tombari, thank you for your testimony. The Carbon 
Services business at Schlumberger is a reassuring example of how the 
fossil fuels industry is responding positively to the prospect of a 
carbon-constrained economy. It is excellent that your expertise in 
identifying and accessing geologic sites for hydrocarbon production can 
be used for carbon sequestration. Mr. Anderson commented that while 
today's legislation will be helpful for risk management carbon 
sequestration projects, he hopes that market based solutions can soon 
provide that risk management.
    To what extent will this bill encourage the availability of such 
market-based solutions? How far away is that scenario?
    Answer. Market-based solutions for risk management during the 
operational phase and equilibrium phases of a storage project exist and 
will develop further once a commercial industry develops. With respect 
to the long term risks (post closure): while the potential risks are 
well documented and low, given a properly selected and operated site, a 
statistical database allowing for quantitative risk analysis does not 
exist. It will take a long time to develop good statistics because of 
the lag between start up operations and site closure. Once operations 
begin commercially there will be improvement in the ability to estimate 
post closure risks. Until then, some Federal based assistance for risk 
management programs will help establish the industry.
    The program fostered by this legislation will create a bridge to 
market-based liability solutions. As indicated in Mr. Anderson's 
testimony, the program establishes a model that resembles market sector 
mechanisms in several respects and limits the number of eligible 
projects. It signals market players to not expect the federal 
government to play the same role for later projects which should 
encourage the development of market-based solutions. We expect that the 
specific projects supported through this legislation, along with other 
projects worldwide, (executed during the same time period) will be 
sufficient to create that market.
      Responses of John Tombari to Questions From Senator Shaheen
    Question 1. In reading your testimony, I have been impressed to 
learn of Schlumberger's work in carbon sequestration since the mid 
1990's. We often talk about the challenges associated with carbon 
capture and sequestration from our power sector, but it is good to know 
there are companies out there--like yours--which have been sequestering 
CO2 for years for enhanced oil recovery (EOR).
    What kind of liability protection has your company used for the 
CO2 injection projects that it has been involved with?
    Answer. Allow me to clarify that Schlumberger has never and will 
never take ownership or production sharing in an oil and gas field 
including one for CO2-EOR. Our involvement over the decades 
of CO2-EOR operations has been only as a service and/or 
technology provider. Schlumberger Carbon Services is focused on saline 
formation storage as opposed to CO2-EOR. Saline formation 
storage is the most important asset that needs to be developed, given 
the volumes of CO2 that will need to be stored in order to 
impact climate change.
    We have not been an owner of CO2-EOR sites and therefore 
have not needed liability protection. For the storage demonstration 
projects we have been involved in, we have not had to take ownership of 
the sites and therefore once again have not needed liability 
protection.
    Question 2. Are these EOR projects Schlumberger has been working on 
capable of permanent CO2 storage? Does your company, or do 
the projects you have been working on, need comprehensive liability 
coverage for an EOR project that goes into eventual permanent storage?
    Answer. We have not been an owner of CO2-EOR sites and 
we do not have access to all the data that would be necessary to 
evaluate whether or not these sites would be suitable for permanent 
CO2 storage. Our focus is on saline formation storage.
    Question 3. Do you think the liability protections contained in S. 
1013 will help address the concerns that new entrants into the carbon 
capture and storage field might have?
    Answer. Yes, the protections contained in S. 1013 will help address 
the concerns that new entrants into the carbon capture and storage 
field might have.
    The CCS industry as a whole has yet to form, so all entrants will 
be new. Even with our extensive technological experience, we too would 
be new entrants. By addressing long term stewardship and liability 
issues, S. 1013 will allow early commercial projects to proceed while 
permanent approaches to risk management are developed.
      Responses of John Tombari to Questions From Senator Bunning
    Question 1. What types of technologies need to be implemented for 
the maintenance of a large scale CCS demonstration project? Are these 
technologies readily available? If not, when will they be and what are 
the estimated costs?
    Answer. Proper site selection and detailed site characterization 
(prior to injection) are needed. Technologies to do this are readily 
available and described above in question number 1 from Senator 
Bingaman. Monitoring technologies, remediation technologies and other 
technologies needed after injection for the maintenance of a large 
scale CCS demonstration project are also readily available yet will 
vary based on site characteristics. Storage operators will need a deep 
understanding of these technologies as well as experience deploying 
them in order to control overall quality, safety and environmental 
issues.
    Storage costs over the life of a large scale project at an easy 
site onshore United States are estimated to be in the range of $5 to 
$10 per ton of CO2. These costs will fluctuate with the 
demand for people and services. There will be a competitive demand for 
similar people and services from both the oil and gas industry and the 
CO2 storage industry. These costs will also be impacted by 
what evolves with respect to how property rights are acquired and with 
what regulations will ultimately require as well as the availability of 
risk transfer mechanisms.
    Question 2. What does the risk profile for saline aquifer storage 
look like?
    Answer. The risk profile at a saline aquifer storage site can vary 
depending upon many factors including:

   The site selected and its complexity.
   The extent to which detailed site characterization was 
        performed prior to injection
   The expertise and risk management processes of the storage 
        operator
   The options available for risk mitigation at the site 
        selected and/or the availability of alternate sites.
   The frequency with which the risk profile is evaluated and 
        updated

    Assuming a qualified site operator has performed all the necessary 
initial detailed site characterization prior to injection and has 
established the risk profile to be acceptable and manageable throughout 
the anticipated life of the project then the following is likely:
    During active injection, risk may fluctuate a bit depending on the 
specific site and the operations being undertaken yet will generally 
decline. Once injection stops the risk will decline more rapidly as the 
CO2 comes near equilibrium. Near equilibrium, risk will 
become very small and ultimately negligible as CO2 continues 
to dissolve into the water and/or mineralization takes place.
    The entire risk profile can be continually and pro-actively re-
evaluated over time as new data from monitoring and/or other sources 
become available. With proper risk management practices and options put 
in place for even the most unlikely of consequences, risks can be kept 
under an acceptable threshold over time. The most critical factor for 
doing this, especially for the early projects, will be the 
qualifications of the storage operator and the technologies they 
deploy. With proper practices and use of the right technology, the risk 
that will be left for a long term steward to manage should be extremely 
small.
                                 ______
                                 
     Response of Chiara Trabucchi to Question From Senator Bingaman
    Question 1. Can you summarize the main differences between the 
liability and indemnity approach that we used in this bill, S. 1013 and 
those of the Price-Anderson Act? Are there any advantages or 
disadvantages to the application of either approach to this emergent 
technology, CCS?
    Answer. My discussions with scientists and engineers expert in 
Carbon Capture and Sequestration technology (hereinafter CCS) suggest 
that CCS is an important component of the portfolio of emission 
reduction technologies available today. Further, to the degree 
investment in CCS technology avoids stranding or abandoning existing 
productive assets and stimulates regional and national economic growth; 
then, I am persuaded that investing in a limited number of 
demonstration projects would be prudent.
    The challenge is to design a financial risk management framework 
that balances incentives to advance the deployment of CCS technology 
with the potential for adverse site selection due to moral hazard.\1\
---------------------------------------------------------------------------
    \1\ Moral hazard refers to the specific situation where the risks 
of an unplanned event increase, because the responsible party is 
(partially) insulated from being held fully liable for resulting harm. 
If CCS facilities are not held completely responsible for the 
consequences of their actions, arguably they will be less careful in 
their siting and operating decisions. Therefore, the incentives to 
capture, transport, site/characterize, and inject carbon dioxide in an 
environmentally sound and protective manner may be diminished. The 
potential for risk increases, because the chances of an unpredictable 
event occurring due to poor siting/operating decisions increase. See 
also Chiara Trabucchi and Lindene Patton, Storing Carbon: Options for 
Liability Risk Management, Financial Responsibility, 173 World Climate 
Change Rep. (BNA) (Sept. 2, 2008).
---------------------------------------------------------------------------
    The stated preference to advance CCS technology is similar to the 
stated preference in 1957 to advance the atomic energy industry. Then 
and now, proponents have cited to the interest of general welfare and 
of common defense and security. Then and now, interested stakeholders 
have raised issues associated with protection of public goods, limit of 
liability (indemnification) for losses and financial protection.
    Enacted in 1957 as an amendment to the Atomic Energy Act of 1954, 
the Price-Anderson Nuclear Industries Indemnity Act (Price-Anderson) 
partially indemnifies the nuclear industry from `public liability' 
arising from an `extraordinary nuclear' incident.\2\ Specifically, the 
Act was designed to protect the public in the event of a nuclear 
incident by ensuring compensation for `meritorious' claims.
---------------------------------------------------------------------------
    \2\ 42 U.S.C. 2210
---------------------------------------------------------------------------
    Price-Anderson established provisions for a cooperative program of 
research and development to advance the deployment of new technology to 
meet stated societal preferences.\3\ The conceptual framework 
underpinning the indemnification and limitation of liability provisions 
in Price-Anderson is based on three components:\4\
---------------------------------------------------------------------------
    \3\ 42 U.S.C. 2292
    \4\ 42 U.S.C. 2210

          (1) Individual (Operator) Financing;
          (2) Collective (Industry) Financing; and
          (3) Federal (Public) Financing.

    The advantage of the Price-Anderson model is that it establishes a 
uniform legal foundation that blends private-public risk sharing with 
the stated objective of advancing new technology.
    The establishment of a cooperative program and the application of a 
conceptual framework that balances financial responsibility between the 
individual operator, the industry collective and the public present 
similar advantages in the context of CCS. However, in my opinion, the 
specific financial protection provisions established for the atomic 
energy sector under the Price-Anderson model are not appropriate for 
use in the CCS context.
             differences between price-anderson and s. 1013
    Senate Bill 1013 adopts elements of the private-public risk sharing 
model first designed under Price-Anderson, but tailors the design of 
the model to fit the CCS context. Specifically, there are three key 
differences between Price-Anderson and S. 1013:

          (1) Timing of Liability Relief
          (2) Use of Site-Specific Risk Assessment
          (3) Establishment of Limits on Public Liability

    First, with respect to Timing of Liability Relief, the Price-
Anderson model establishes liability relief and indemnification for 
incidents that occur during the active operating life of the licensee, 
once claims exceed established limits of liability. In contrast, as I 
understand, S.1013 holds the developer of the CCS demonstration project 
legally and financially responsible for events that occur during the 
operating lifecycle of the CCS project, and for a defined period post-
injection.
    That is, S. 1013 provides liability relief and indemnification 
after a certificate of closure is obtained and title is transferred. By 
limiting liability relief to after the operator has demonstrated that 
the CO2 plume `has come into equilibrium with the geologic 
formation,' S.1013 provides incentives for CCS developers to properly 
operate and maintain their sites, limiting the potential for future 
damages and public liability.
    Second, with respect to Use of Site-Specific Risk Assessment, the 
Price-Anderson model establishes absolute, blanket dollar caps on 
coverage for the individual tier, and for the collective industry 
tier.\5\ Under Price-Anderson, the level of financial protection 
required by each licensee, and therefore the public liability resulting 
after the individual and collective industry caps are reached, is not 
based on a site-by-site characterization of risk or potential for 
injury. Rather, Price-Anderson limits the amount of primary financial 
protection required by the licensee to the ``amount of liability 
insurance available from private sources.''\6\
---------------------------------------------------------------------------
    \5\ 42 U.S.C. 2210(b)
    \6\ 42 U.S.C. 2210
---------------------------------------------------------------------------
    Price-Anderson further states that for a subset of licensees the 
amount of primary financial protection shall be the ``maximum amount 
available at reasonable cost or on reasonable terms from private 
sources.''\7\ If claims from an incident exceed the available premiums 
from private and pooled insurance, the Nuclear Regulatory Commission 
has the authority under Price-Anderson to indemnify the licensee from 
remaining liability in connection with the occurrence.
---------------------------------------------------------------------------
    \7\ 42 U.S.C. 2210
---------------------------------------------------------------------------
    To the degree the private insurance markets are unwilling to 
underwrite long-term liability claims for CCS at this time--that is, 
the maximum amount of liability insurance available from private 
sources for long-term CCS stewardship is $0--then, under a `Price-
Anderson like' model, the public would bear 100 percent of the 
financial risk for long-term care until such time as insurance products 
become available. Providing for 100 percent risk absorption by the 
public eliminates the inherent benefit of a private-public risk sharing 
model, by introducing issues of moral hazard and shifting financial 
responsibility to the taxpayer. Essentially, public financing of this 
sort distorts or eliminates the impact of market forces in determining 
what is or is not a rational, risk-neutral business venture.
    In my view, failing to hold the CCS developer financially 
responsible during the project's operating lifecycle and/or 
establishing arbitrary limits of liability that are not based on the 
Net Present Value of potential damages arising from each CCS 
demonstration project may increase the probability and frequency of 
long-term risk by eliminating financial incentives for sound operating 
behavior and site selection.\8\
---------------------------------------------------------------------------
    \8\ As I noted in my written testimony, dated May 14, 2009, the 
analytic tools exist to estimate dollar values for potential damages 
arising from each CCS demonstration project. These tools are routinely 
used by firms expert in financial and natural resource economics.
---------------------------------------------------------------------------
    As noted in my written testimony, Net Present Value analysis should 
be used to underpin the financial management framework proposed in S. 
1013.\9\ Further, as I understand, S. 1013 is designed to assess and 
collect fees from the CCS developer during the active life of the 
demonstration project, with the objective of using such fees to finance 
the cost of long-term stewardship after title is transferred. In 
return, the CCS developer is assured a measure of liability relief and 
indemnification. With this adaptation, and by virtue of holding the 
developer financially responsible during the period of injection, S. 
1013 has the advantage of sharing the financial risks associated with 
long-term care between the private and public sectors, and minimizing 
the potential for public liability.
---------------------------------------------------------------------------
    \9\ See Written Testimony before the Committee on Energy and 
Natural Resources. United States Senate. Hearing on Senate Bill 1013, 
Department of Energy Carbon Capture and Sequestration Program 
Amendments Act of 2009. May 14, 2009. pp 5-8.
---------------------------------------------------------------------------
    Third, with respect to Establishment of Limits on Public Liability, 
the Price-Anderson model affords broad-scale indemnification and 
limitation of liability across multiple use patterns in the manner of 
one size fits all. In contrast, S. 1013 authorizes assistance for up to 
10 demonstration projects with explicit provisions for project 
selection and financial protection. By doing so, S.1013 provides a 
measure of financial and regulatory certainty and sends a positive 
signal to the private capital markets, but limits the overall risk 
exposure to the public to a discrete number of sites with a discrete 
array of selection criteria.
            similarities between price-anderson and s. 1013
    There are two elements of S. 1013 that appear to draw language 
directly from Price-Anderson. In my view, these provisions should not 
mirror Price-Anderson, but rather should be adapted to the CCS context. 
The two provisions include:

          (1) Level of Indemnification
          (2) Deposits to the United States General Treasury

    First with respect to Level of Indemnification,

          Price-Anderson. Section 2210(c) Indemnification of licensees 
        by Nuclear Regulatory Commission ``The Commission shall . . . 
        agree to indemnify and hold harmless the licensee and other 
        persons indemnified, as their interest may appear, from public 
        liability arising from nuclear incidents which is in excess of 
        the level of financial protection required of the 
        licensee.''\10\
---------------------------------------------------------------------------
    \10\ 42 U.S.C. 2210(c)
---------------------------------------------------------------------------
          S. 1013. Section (g)(2) Agreements ``The Secretary may agree 
        to indemnify and hold harmless the recipient of a cooperative 
        agreement under this section from liability arising out of or 
        resulting from a demonstration project in excess of the amount 
        of liability covered by financial protection maintained by the 
        recipient under subsection (e)(7).''

    As noted above, Price-Anderson establishes an absolute dollar value 
for the level of financial protection required of the licensee, and 
further caps the aggregate indemnity for all persons indemnified in 
connection with each incident. The indemnification language under 
Section 2210(c) of Price-Anderson relies on these concomitant limits of 
liability, and thereby establishes a de facto dollar value for public 
liability arising from incidents that occur during the active operating 
life of the licensee.
    As I understand, under S. 1013, the CCS developer remains legally 
and financially responsible for incidents that arise during the active 
life of the project, and until such time as the developer demonstrates 
plume equilibrium. If so, the language in Section (g)(2) of S. 1013 
should not map to the provisions of Section (e)(7), which establish 
financial assurances until a certificate of closure is issued. Rather, 
the language in Section (g)(2) should map to the risk-adjusted, site-
specific Net Present Value of future expected losses arising from each 
individual demonstration project. This change, which aligns the 
provisions in Section (g)(2) with the provisions related to the 
collection of fees in Section (g)(4), creates financial incentives for 
the CCS developer to establish site selection and operating criteria 
that will limit the `net present value of payments,' and thereby reduce 
the potential for future damages and public liability.
    Second, with respect to Deposits to the United States General 
Treasury,

          Price-Anderson. Section 2210(b)(4)(B) Amount and type of 
        financial protection for licensees `` . . . any funds 
        appropriated under subparagraph (A)(i) shall be repaid to the 
        general fund of the United States Treasury from amounts made 
        available by standard deferred premium assessments, with 
        interest at a rate determined by the Secretary of the Treasury  
        . . . ''\11\
---------------------------------------------------------------------------
    \11\ 42 U.S.C. 2210(b)(4)(B)
---------------------------------------------------------------------------
          Section (g)(4)(C) Use of Fees ``Fees collected under this 
        paragraph shall be deposited in the Treasury and credited to 
        miscellaneous receipts.''

    In the event funds available to pay valid claims in any year are 
insufficient, the Nuclear Regulatory Commission is authorized under 
Price-Anderson to request the Congress appropriate sufficient funds 
necessary to satisfy such payments. With few exceptions, funds 
appropriated for this purpose are to be repaid to the general fund of 
the United States Treasury by the licensee. In the absence of doing so, 
the Commission may place liens against the property of, or revenues 
generated by, the licensee.\12\ These provisions presume that the 
licensee is active and remains financially capable of generating 
income. That is, Price-Anderson establishes provisions for cost 
recovery ex poste.
---------------------------------------------------------------------------
    \12\ 42 U.S.C. 2210(b)(3)
---------------------------------------------------------------------------
    In my view, the indemnification provisions of S. 1013 are 
predicated on the payment of funds into the Treasury today (or in the 
near term) with the expected use of funds deferred to a future period 
in time--after title to the CCS project has transferred, and the 
operator is no longer financially responsible pursuant to its 
indemnification agreement. That is, S. 1013 establishes provisions for 
cost recovery ex ante.
    Unless the fees collected pursuant to S. 1013 are set aside in a 
dedicated, interest-bearing account, there is the risk that the funds 
collected will not match the anticipated use of funds in the future. A 
key implication of not setting the fees aside in an interest-bearing 
account is that this sequestration program likely would need to collect 
a larger amount of funds today to avoid under funding long-term care 
costs in the future.
    In my view, there are advantages in applying elements of the 
provisions established under Subchapter VII, Decontamination and 
Decommissioning of the Price-Anderson Act to Section (g)(4)(C) of S. 
1013. Specifically, Section 2297(g) of this Subchapter of Price-
Anderson establishes a dedicated interest-bearing account, the Uranium 
Enrichment Decontamination and Decommissioning Fund, in the 
Treasury.\13\ The Fund was established to finance decontamination, 
decommissioning and remedial action costs at covered facilities.
---------------------------------------------------------------------------
    \13\ 42 U.S.C. 2297(g)
---------------------------------------------------------------------------
    In my view, the adaptations discussed above, coupled with the 
modifications suggested in my written testimony, will help offer 
financial and legal certainty to the developers of CCS demonstration 
projects, ensure the continuity of financial assurances for long-term 
stewardship and send a positive signal to the private capital markets 
interested in investing in CCS technology. With these modifications, S. 
1013 represents a notable step forward in providing the incentives 
necessary to capture, transport, site/characterize, and inject carbon 
dioxide in an economically efficient, environmentally sound and 
financially protective manner.
     Response of Chiara Trabucchi to Question From Senator Bunning
    I believe that C.O.2 is not a waste product, but rather a commodity 
that will be sold on the marketplace for enhanced oil recovery and 
other uses. What can the government do to encourage this kind of use 
for carbon emissions?
    Answer. The sale of carbon dioxide (CO2) for Enhanced 
Oil Recovery (EOR) or other beneficial use is encouraged under various 
state statutes.\14\ In my view, the beneficial use of CO2 
for purposes of FOR extends the production of domestic energy resources 
and avoids stranding or abandoning existing productive assets. To the 
degree society has a stated preference to reduce CO2 
emissions, and CO2 for FOR represents a near-term 
opportunity to foster CCS technology, then incentives may be warranted, 
including:
---------------------------------------------------------------------------
    \14\ See Texas Natural Resource Code, Title 3, Oil & Gas, Subtitle 
D, Chapter 119

          (1) Incentives that promote joint business ventures between 
        generators of CO2 emissions and firms undertaking 
        EOR projects.
          (2) Opportunities for financial and technical assistance for 
        EOR projects that demonstrate material beneficial use and 
        permanent storage of CO2.
          (3) Incentives to foster the development of a pipeline 
        infrastructure that bridges CO2 processing plants 
        and geographic areas with unrecovered oil deposits.
                               discussion
    In oil fields where production by conventional drilling has 
dwindled, firms are able to extend the revenue generating potential of 
the site by injecting CO2. The CO2 is recycled 
over the life of the project to prolong production. By using existing 
well bores, the firm is able to increase production without incurring 
added capital expenses, thereby maximizing return on investment.
    Depending on the time horizon over which risks and attendant 
financial consequences from these investments are likely to occur, the 
financial markets may offer short-, medium-, or long-term capital. In 
general, the shorter the term of the capital investment, the greater 
the market segment's tolerance for risk.
    Financing CCS ventures associated with coal-fired power plants 
requires investors with a long-term capital horizon. Typically, these 
investors have a low risk tolerance for the unexpected and the 
unquantifiable. This segment of the financial market generally seeks 
risk sharing opportunities with market segments that demonstrate higher 
risk tolerance; for example, the oil and gas sector. In so doing, the 
institutional investor is best able to diversify its investment 
portfolio and hedge its overall risk exposure. Increased pressure 
facing coal-fired power plants to mitigate CO2 emissions 
coupled with oil interests searching for supplies of CO2 for 
EOR suggest market opportunities exist for mutually beneficial joint 
ventures.
    Companies undertaking EOR projects with CO2, either 
individually or as part of a joint venture, are likely to reap 
considerable returns on investment. However, these returns are 
predicated on up-front capital investments, including:

   Facilities for CO2 Capture (e.g., natural gas or 
        other),
   Pipelines,
   Compression equipment,
   Transportation,
   Distribution lines,
   Flow lines, and
   Injection wells.

    Simply stated, the beneficial use of CO2 for EOR is 
predicated on a pipeline infrastructure, whereby CO2 is 
captured, compressed and shipped from a CO2 (natural gas or 
other) processing plant, then shipped via pipelines to the oil fields.
    To the degree society has a stated preference to reduce 
CO2 emissions, and CO2 for EOR represents a near-
term opportunity to foster the design and deployment of CCS technology 
on a smaller, yet economically efficient scale, then:

          (1) Incentives that promote joint business ventures between 
        generators of CO2 emissions and firms undertaking 
        EOR projects may be warranted; and
          (2) Similar opportunities for financial and technical 
        assistance as those proffered to large-scale industrial sources 
        under S.1013, including the opportunity to compete for a 
        cooperative agreement under Section (d) of the Bill, may be 
        warranted for FOR projects that demonstrate material beneficial 
        use and permanent storage of CO2.
          (3) Incentives to foster the development of a pipeline 
        infrastructure that bridges the processing plants with 
        available CO2 and the geographic areas with 
        unrecovered oil deposits may be warranted;
                                 ______
                                 
   Responses of A. Scott Anderson to Questions From Senator Bingaman
    Question 1. In Mr. Moor's testimony, he states that the financial 
protection required for the operational phases be set and defined as 
the ``maximum private insurance available in the market''. Do you think 
this is a necessary provision, seeing as how companies frequently self-
insure their industrial operations? They also have other mechanisms for 
``insurance'', such as mutual funds, bonding programs, and more.
    Answer. Once CCS developers are able to manage the risks of 
liability exposure and other financial risks by relying on market 
mechanisms rather than government protection, a variety of alternatives 
will be available and the tools will by no means be limited to 
insurance. To some extent the various tools already exist today. It is 
only because some developers are unable or unwilling to self-insure, 
and because other risk management mechanisms for CCS are not fully 
developed, that it makes sense for government to serve as a back-stop 
for some early projects.
    In a fully functioning market the decision on whether and how much 
insurance to purchase should be left to individual firms. We agree with 
Mr. Moor, however, that even a program for a limited number of early 
projects should not indemnify private parties for losses that could 
have been covered by private insurance. We would support defining 
``insurance'' broadly to include similar types of private sector risk-
sharing arrangements (bonds, letters of credit, etc.) acceptable to the 
Secretary. Requiring developers to obtain as much insurance as they 
reasonably can would protect taxpayers and create demand that 
encourages development of private sector offerings.
    We recommend along with Mr. Moor that the statute give project 
developers an affirmative obligation to demonstrate that they have used 
their best efforts to obtain the maximum insurance coverage (broadly 
defined) available given the developer's individual circumstances. In 
addition, the statute should limit the government's financial exposure 
so that taxpayers will not pay for losses that could have been covered 
by such insurance.
    Question 2. Also, Mr. Moor and states concerns with the term 
``equilibrium'' that if it is not more adequately defined it could drag 
out the closure period for ``an unjustifiably long time period''. Do 
you agree with this statement? Do you feel that the term is too 
restrictive? Do you consider the additional 10-year period to be 
redundant?
    Answer. EDF agrees that a strict application of the term 
``equilibrium'' (or the similar term ``stabilization'') could extend 
the closure period beyond the time necessary. Our understanding is that 
there are likely to be some cases where secure storage can be 
demonstrated, prior to equilibrium, even though the CO2 
plume will continue to migrate slowly for many decades or even 
centuries.
    The attached letter, submitted to EPA on December 23, 2008 by a 
diverse group of stakeholders including EDF, the American Petroleum 
Institute and the Edison Electric Institute, recommends a set of 
closure standards that would not require equilibrium or stabilization 
to be expressly demonstrated in every case. The suggested standards are 
based on earlier work by the World Resources Institute and the Ground 
Water Protection Council. If EPA and other regulators adhere to these 
proposed closure standards in their entirety, we believe the standards 
will lead to appropriate decisions on whether and when to certify sites 
for closure. We ask that the letter be made a part of this record.
    While EDF believes that in the future it will not be necessary to 
demonstrate stabilization in every case (we prefer the term 
``stabilization'' to ``equilibrium''), we do not oppose using the 
concept in a bill relating to early projects so long as the concept is 
not applied in an overly strict manner. Stabilization has an intuitive, 
common-sense appeal and requiring evidence related to stabilization may 
promote public acceptance of the emerging technology. Moreover, even as 
a technical matter, there is a sense in which a degree of stabilization 
is important. In order to be sure that the stabilization requirement is 
not overly strict, we suggest that the bill be amended to require a 
determination of whether the carbon dioxide plume has stabilized ``to 
the degree necessary'' to begin an assessment of whether closure 
standards have been satisfied.
    With regard to the ten-year period, we do not view it as redundant. 
In fact, we do not view it as ``additional'' to the closure evaluation 
required by the bill. Instead, as we read the bill, the ten-year period 
is treated as an integral part of the closure assessment process. The 
bill's approach to closure evaluation appears to be based on the 
concept that assessment should occur over a minimum span of time and 
the concept that a project should have a ``clean bill of health'' 
throughout the period. The question in our mind is whether this is a 
reasonable approach.
    EDF believes that sequestration projects can be regulated in the 
future without requiring post-injection monitoring for a fixed period 
of time. The important thing is to require that projects meet 
environmentally sound performance standards before the projects qualify 
for closure--regardless of how much or how little time it takes to meet 
the standards. Nevertheless, we do not oppose the idea of a fixed, 
minimum evaluation period as part of the oversight of early projects. 
Like the stabilization concept, this idea has an intuitive, common-
sense appeal and may promote public acceptance of the emerging 
technology.
   Responses of A. Scott Anderson to Questions From Senator Murkowski
               options for advancing carbon sequestration
    Question 3. The debate on domestic policies related to global 
climate change is still very much underway.
    Absent a price on carbon, and in addition to the liability option 
that is under consideration in the context of S. 1013, what other 
measures should the Congress consider pursuing to expedite the 
development and deployment of carbon sequestration technologies?
    Answer. EDF supports the additional measures proposed by USCAP in 
order to expedite the development and deployment of carbon 
sequestration technologies. See USCAP, A Blueprint for Legislative 
Action--Consensus Recommendations for U.S. Climate Protection 
Legislation (January 2009). The USCAP suggestions are part of a larger 
climate initiative and are not a stand-alone proposal. In the absence 
of cap and trade legislation, we believe that any additional 
Congressional funding for carbon capture and sequestrations should be 
relatively modest. Consensus Recommendations for U.S. Climate 
Protection Legislation
                        purity of carbon dioxide
    Question 4. In some instances, it is my understanding that the flue 
gas to be sequestered from coal-fired plants may not be 100% pure 
CO2.
    Is the Environmental Defense Fund concerned about substances other 
than CO2 being injected underground?
    Answer. We do not expect injected CO2 streams to be 100% 
pure CO2, although we do expect the CO2 content 
of the injected stream to be 95% or greater in virtually all cases. It 
is important to remember that the scientific consensus supporting the 
feasibility of CO2 sequestration relates to CO2 
sequestration, not to the sequestration of flue gas. CO2 
needs to be separated from the flue gas before it is injected. While 
these are our expectations, we are not advocating new quantitative 
requirements relating to CO2 content or to the content of 
substances that might be mixed with the CO2. We believe that 
other substances should be prohibited if they interfere with storage 
site operations or if they are not incidental to the capture process.
    There are some special situations where injection of substances 
other than the CO2 itself might lead to problems, but at 
this point we do not think that new grants of regulatory authority are 
necessary in this regard. If the ``other'' substances were to cause the 
injection stream to qualify as a hazardous waste under RCRA, the 
injection operation would and should become subject to RCRA 
jurisdiction. Similarly, if substances were to leak from a storage 
formation and trigger CERCLA liability, the operation would and should 
be subject to the requirements of that statute.
    The theoretical applicability of RCRA or CERCLA may never arise in 
practice. But there is one issue relating to ``other substances'' that 
is almost certain to arise--how much hydrogen sulfide should be 
permitted in the CO2 stream? For safety reasons, 
CO2 pipelines currently impose very strict limits on 
hydrogen sulfide content. The limits vary from pipeline to pipeline. We 
understand that in some instances the CO2 capture process 
could yield incidental traces of hydrogen sulfide that, while small, 
are in excess of the current specifications of some pipelines but 
within the specifications used by other pipelines. We believe that this 
is an issue that deserves the close attention of regulators and 
policymakers, but at this point we do not believe that any new 
regulatory authority is needed in order to deal with possible problems.
    Response of A. Scott Anderson to Question From Senator Stabenow
    Question 1. While it is imperative to identify quality geological 
formations that will contain carbon with as little risk of leakage as 
possible, I would like to know more about other ecological and 
environmental risks that may be present. Mr. Moor of Southern Company 
mentioned in his written testimony the risks that injected carbon may 
pose to ground water. In a place such as Michigan where water is 
carefully monitored and protected, please tell me: what we need to do 
to ensure water quality while finding more opportunities for CCS?

   Has United States Geological Survey studied this issue?
   What have we learned from injecting carbon into old gas and 
        oil wells?
   Are there adequate protections from the Safe Drinking Water 
        Act? While EPA is not present here, is it already considering 
        this?

    Answer. These are large and important questions! Fortunately there 
are good reasons to expect that 99% or more of CO2 
sequestered in geologic formations will remain in place for 1000 years 
or more--if the sites are properly selected and properly managed. See, 
for example, the International Panel on Climate Change Special Report 
on Carbon Dioxide Capture and Storage (2005) and literature reviewed by 
EPA in Docket No. EPA-HQ-OW-2008-0390, Proposed Rule for Geologic 
Sequestration of Carbon Dioxide.
    The importance of proper site selection and proper operations 
cannot be overemphasized--geologic sequestration is not something that 
can be done just anywhere and it requires sophisticated oversight by 
both the companies involved and regulators. EDF agrees with the 
International Panel on Climate Change and with the U.S. EPA that the 
necessary tools and expertise are available. As a technical matter, CCS 
is ready to begin deployment today.
    I believe that one of the most important objectives in the 
oversight of geologic sequestration projects is assuring that formation 
fluids displaced by CO2 injection are not driven out of the 
underground storage area and into an underground source of drinking 
water. Michigan will want to make sure that requirements include: (1) 
confining zones of sufficient quality and lateral extent to confine 
both displaced formation fluids and injected CO2; (2) a 
definition of ``zone of elevated pressure'' that is designed to guard 
against either CO2 or formation fluids being driven into a 
USDW; (3) modeling movement of both the CO2 plume and 
formation fluids; (4) monitoring of ground water quality and any 
geochemical changes above the confining zone; (5) remedial response 
plans in the event problems appear to be developing; and (6) a 
prohibition against sequestering CO2 above the lowermost 
source of drinking water unless special rules are followed relating to 
assessing confining layers beneath the injection zone, monitoring, and 
conducting regional hydrogeologic studies. EPA has proposed requiring 
(1) though (5). In the case of (6), EPA has proposed an even stricter 
approach--a total prohibition on sequestration above the lowermost 
USDW.
    The USGS is in the process of studying issues regarding geologic 
sequestration. For example, see DOI, Report to Congress: Framework for 
Geological Carbon Sequestration on Public Land (2009) (USGS, as well as 
EPA and DOE, contributed to this study). As time goes on we hope that 
USGS will be able to continue to make significant contributions to the 
deployment effort.
    For over 30 years, the oil industry has injected without serious 
incident significant quantities of CO2 in order to enhance 
petroleum production. Injections currently total about 35 million tons 
per year. In the process much has been learned about the behavior of 
CO2 underground. The oil and gas industry has developed 
expertise in a number of other areas as well that are useful for 
geologic sequestration, e.g., various types of seismic imaging, 
techniques for calculating site-specific limits on injection pressures, 
and well construction techniques that are capable of preventing leakage 
from the injection zone back to the surface.
    At this time we believe EPA's Safe Drinking Water Act authority is 
adequate to regulate geologic sequestration for purposes of protecting 
underground water quality.
                                 ______
                                 
     Responses of Victor K. Der to Questions From Senator Murkowski
    Question 1. Number of Projects--The 2007 Energy Bill authorized 7 
CCS demonstration projects, FutureGen represents another, CCPI will 
presumably result in at least one, and S. 1013 would provide for 10 
more. That represents, minimally, 19 demonstration projects.
    Does the Department believe this number is too high, too low, or 
about right in terms of the number of demonstrations that will be 
required to prove the viability of carbon capture and sequestration 
technologies at a sufficiently diverse number of geological and 
geographical sites throughout the country?
    Answer. The Department of Energy believes that in order to 
demonstrate the long term, safe storage of CO2, projects 
covering a wide variety of geologies, formations, and reservoir types 
must be tested. We also need to demonstrate integrated carbon capture 
and storage (CCS) demonstrations with both current and evolving capture 
technologies. We believe that the 19 projects cited will provide a 
strong foundation to demonstrate the viability of CCS technologies, and 
would represent the minimum number of projects necessary to set the 
stage for early demonstration over the next few years.
    Question 2. Quantifying Risk--It has proven somewhat difficult to 
calculate the risk profile of loan guarantees for clean energy projects 
(under Title XVII of the 2005 Energy Policy Act) that have a verifiable 
cost in terms of the amount of the individual loans to be guaranteed. 
The potential liabilities and attendant risk profiles associated with 
carbon sequestration demonstration projects are even less certain and 
include bodily injury, sickness, disease, death, loss of or damage to 
property, loss of use of property, and injury to or destruction or loss 
of natural resources (including fish, wildlife, and drinking water 
supplies) according to the legislative text of S. 1013,
    Is the Department prepared to calculate the fees required by this 
bill (on page 8, line 21 of S.1013) to cover potential liabilities?
    Have you given any preliminary thought to how you would go about 
that task?
    What is the precedent for a calculation of this kind? Specifically, 
what are the relevant differences and similarities between the approach 
taken by 8.1013 and both the Price-Anderson indemnification program and 
that established by Public Law 85-804?
    What are some examples of potentially suitable financial 
protections to be maintained (on page 6, line 6 of S. 1013) by the non-
federal participants in any of the 10 demonstration projects authorized 
and does the Department have information (anecdotal, quantifiable or 
otherwise) that it can share on the availability, or lack thereof, of 
private insurance policies for carbon sequestration operations?
    Answer. To answer your first question, no, DOE is not presently 
prepared to make these calculations.
    DOE is still researching and identifying possible examples of 
financial protection applicable to CO2 storage. However, it 
is notable that private insurance companies are starting to develop 
products to cover some of the risks associated with geologic injection 
and storage of CO2.
    Question 3. Existing Appropriations--There are now approximately 
$4.1 billion at DOE for projects related to carbon sequestration. For 
at least a portion of that money (that which is spent pursuant to the 
Section 702 authorization of the 2007 Energy Independence and Security 
Act), there is a statutory requirement that 1 million tons of 
CO2 be injected per year or that a project be undertaken at 
a scale that demonstrates the ability to inject and sequester several 
million metric tons of industrial source carbon dioxide for a large 
number of years. S. 1013 would decrease that requirement for the 
existing Section 702 authorization and retain it for the newly (and 
potentially) authorized 10 projects in the bill.
    Is it possible for DOE to spend the already appropriated $4.1 
billion on projects that would inject 1 million tons of CO2 
annually without the option to indemnify the nonfederal participants?
    Is it possible for DOE to spend the already appropriated $4.1 
billion on projects that are undertaken at a scale that demonstrates 
the ability to inject and sequester several million metric tons of 
industrial source carbon dioxide for a large number of years without 
the option to indemnify the non-federal participants?
    The day following the legislative hearing on S.1013, the Department 
announced funding for $2.4 billion in CGS projects. Did that funding 
include a minimum of 1 million tons of CO2 injected annually 
as part of the eligibility criteria, or that the projects are 
undertaken at a scale that demonstrates the ability to inject and 
sequester several million metric tons of industrial source carbon 
dioxide for a large number of years?
    Is the $1.52 billion associated with the ``Industrial Carbon 
Capture and Storage'' to be made available pursuant to the Section 702 
authorization, or some other provision of law?
    Answer. Regarding indemnification and spending per the appropriated 
funding, it is unknown at this time how the indemnification provision 
in S. 1013 will impact the number or quality of applications for the 
Industrial Carbon Capture and Storage (ICCS) program and Clean Coal 
Power Initiative (CCPI) Round 3, both authorized for funding by the 
American Recovery and Reinvestment Act of 2009 (Recovery Act). We 
expect that applicants may be willing to accept the risk and propose 
projects. The CO2 capture and injection goals of the 
Department of Energy, however, are unaffected by the indemnification 
provision in S.1013.
    The ICCS and CCPI programs, as authorized by the Recovery Act, are 
to demonstrate the integration of CO2 capture and storage 
methodologies. The ICCS Funding Opportunity Announcement sets a target 
of I million tons CO2 sequestered per plant per year by 
2015. The amount of CO2 sequestered will be one of the 
evaluation criterion. The CCPI has a requirement for a minimum of 
300,000 tons of CO2 per year.
    Consistent with the conference language accompanying the Recovery 
Act, the $1.52 billion will be used for industrial carbon capture and 
storage authorized pursuit to Section 703 of the Energy Independence 
and Security Act and an allocation for beneficial use of 
CO2.
    Question 4. The Role of States--In competing for the FutureGen site 
selection, both Illinois and Texas passed state laws to assume 
ownership of and liability for, the injected CO2.
    What is the Administration's position on the role of the states in 
terms of long-term stewardship of CCS sites, as compared to the federal 
role contemplated by S. 1013?
    Answer. Some states have passed laws to assume ownership and 
liability of the CO2 for a particular project, while several 
others have passed or are looking to implement laws assigning ownership 
and liability to industry. The legal framework for carbon capture and 
storage will need to address liability, pore space ownership, and 
pertinent regulatory authority. The potential for wide variability in 
how states address these issues is great since some states have 
extensive experience in oil and gas production, some states have 
experience in regulatory permitting, while others have limited 
experience related to both. DOE and other Federal agencies are 
currently reviewing S.1013 regarding the state versus the Federal role 
in assuming liability for injected CO2 after which 
recommendation to the Administration can be made.
      Responses of Victor K. Der to Questions From Senator Shaheen
    Question 1. Much of DOE's work on clean coal has been on the 
technology development front, but it's good to hear you are also 
working on storage issues and sequestration issues for CCS. Many of the 
individual pieces of a CCS system are known--that is how to capture 
carbon at the combustion source, how to transport CO2 and 
how to geologically sequester it. Yet the real challenge seems to be to 
combine all of these different technologies into a working system. In 
your view, what kinds of time horizons are we looking at for the 
deployment of large-scale CCS projects in the utility sector?
    Answer. The President's budget proposal for FY 2010 calls on 
Congress and stakeholders to work with the Administration toward the 
goal of reducing of our greenhouse gas emissions to a level that is 
about 14 percent below 2005 levels by 2020 and 83 percent below 2005 
levels by 2050. Initiating commercial implementation of carbon capture 
and storage (CCS) in the 2020 timeframe is required to ensure that new 
plants can economically incorporate CCS and that CCS technology can be 
affordably applied to the existing coal-fired power plants so that they 
too can contribute towards the 2050 reduction target.
    Question 2. In your testimony you state that ``today's commercially 
available CCS technologies will add around 80 percent to the cost of 
electricity for a new pulverized coal plant.'' Is it fair to say that 
as CCS technologies ramp up, and we learn from some of the earlier 
``first-of a-kind' CCS facilities that these costs will come down? Do 
you have any sense of how long it will take for the price of these CCS 
facilities to come down?
    Answer. The carbon capture and storage (CCS) technology research, 
development and demonstration effort is focused on achieving specific 
performance goals, including reducing the cost of capture technology, 
along a timeline that will result in marked improvements over today's 
technology. Experience from first-of-a-kind demonstrations should 
result in the ability to identify cost reductions, efficiency 
improvements, sustained reliability and other optimizations for follow-
on plants with CCS. These integrated goals are applicable to both the 
existing fleet of coal-fired power plants as well as the new near-zero 
emission coal-fueled energy systems of the future. These goals are 
described in the FY2010 Congressional Budget Request:

   By 2012, validate pre-combustion capture technology(ies) 
        that if integrated with an IGCC power plant, through a rigorous 
        systems analysis, could show ``near-zero'' atmospheric 
        emissions configurations at no more than 10 percent increase in 
        the cost of electricity relative to 2003 technology baseline 
        (pulverized coal).
   By 2013, complete bench-scale development of advanced post-
        and oxy-combustion capture technologies that are capable of 90 
        percent CO2 capture at no more than a 35 percent 
        increase in cost of electricity.
   By 2020, complete full-scale demonstration of advanced post-
        and oxy-combustion CO2 capture technologies that can 
        achieve 90 percent CO2 capture at a target of less 
        than a 35 percent increase in cost of energy.

    It is difficult to make any definitive comments regarding the 
decrease in CCS technology costs with time. The economics and 
commercial viability of CCS implementation will depend on factors other 
than successful technology demonstration, such as, maintenance costs 
for the technology and changes in legislation regarding greenhouse gas 
emissions.
    Question 3. Do we have any time horizons and costs of scale for 
other technologies, for example the development of nuclear power that 
we can compare CCS to?
    Answer. We do not have credible methods for comparing the time 
horizons and costs of scale for nuclear power or other alternative 
technologies with carbon capture and storage (CCS).
    Some CCS technology has the benefit of decades of experience from 
the oil and gas industry. For example, the oil and gas industry 
experience in exploration, drilling and enhanced oil recovery using 
CO2 flooding has produced significant understanding of the 
storage of CO2 as well as preliminary evidence of its 
permanence. Furthermore, the capture of CO2 from a dilute 
combustion stream is somewhat analogous to the capture of SO,, and NO 
from these streams Lessons learned and technology developed in these 
related fields will help to advance CCS technology in a timely manner. 
Demonstrating the safe and effective long-term geologic storage aspects 
to the public will also be addressed as part of our program as we move 
forward with CCS.
      Responses of Victor K. Der to Questions From Senator Bunning
    Question 1. Mr. Der, as you know I am a proponent of coal-to-liquid 
fuels technology. I believe this promising technology paired with 
carbon capture can provide a domestic supply of diesel and jet fuel in 
an environmentally responsible manner. In the past I have introduced 
legislation to provide government incentives, in the form of tax 
credits and planning loans, for the first few coal-to-liquid 
facilities. Do you believe that coal-to-liquid facilities with carbon 
capture capability can help accelerate the demonstration of stored 
C.O.2 in conjunction with enhanced oil recovery and saline aquifer 
storage?
    Answer. A coal-to-liquids facility will act like any other 
industrial source of CO2 and, when integrated with CCS 
technology, provide a stream of CO2 that can be used to 
demonstrate CO2 storage, such as in a saline aquifer, or 
used to commercial benefit, as in enhanced oil recovery. Additionally, 
DOE's National Energy Technology Laboratory's analyses have shown that 
a coal and biomass to liquids facility, using indirect liquefaction 
technology with carbon capture and storage (CCS) capability (e.g. 
enhanced oil recovery systems, saline aquifers), could produce liquid 
fuels that have over a 30 percent lower life cycle Greenhouse Gas (GHG) 
emissions than petroleum-derived diesel.
    Question 2. Mr. Der, in your testimony you outline the funding that 
was provided to D.O. E for sequestration in the American Recovery and 
Reinvestment Act. Could you discuss your funding needs for these 
projects in the long term?
    Answer. Funding in the American Recovery and Reinvestment Act of 
2009 (Recovery Act) will allow us to accelerate the development of 
technology required to capture and store CO2 by fully 
funding early carbon capture and storage (CCS) projects. The goal is to 
have advanced CCS technologies demonstrated by 2020, which would then 
allow CCS to be widely deployed. Recovery Act funding helps to achieve 
that goal by allowing us to accelerate research and development of 
applicable capture and storage technologies, while working to reduce 
their cost and speed their commercial potential. This would entail 
additional follow-on demonstration projects in the outyears that would 
incorporate improved, lower-cost CCS technologies resulting from our 
R&D program.
    Question 3. What information and data do you hope to gain from the 
7 regional partnerships demonstrations? When will this information 
become available?
    Answer. The DOE Regional Carbon Sequestration Partnerships (RCSPs), 
located throughout the United States, have completed a significant 
amount of work on the characterization of their regions for 
opportunities to store CO2 in different geologic formations. 
Each of the RCSPs has created a digital atlas for its region, which 
contains information on the sources of CO2 and the storage 
capacity. The DOE has worked with all of the RCSPs to standardize their 
capacity assessment methodology and combine the regional data into one 
system called the National Carbon Sequestration Database and Geographic 
Information System (NATCARB), which is an interactive atlas and is 
available free, online, to the public. In addition to NATCARB, DOE has 
worked with the US. Geological Survey and others to develop and produce 
the Carbon Sequestration Atlases for North America. The results of 
these assessments have shown that there is enough capacity to store the 
emissions from major point sources in North America for hundred of 
years.
    The RCSPs are also working on technical, regulatory and permitting 
issues during the operation of over 30 field projects in different 
geologic settings. The lessons learned are being documented by the 
partnerships to identify the technologies and protocols which would 
result in cost effective storage of CO2 in deep geologic 
formations such as oil fields, coal seams, and saline formations. The 
DOE and the RCSPs are also working on a series of best practices 
manuals to consolidate these lessons learned for future stakeholders. 
The first of these manuals was released earlier this year and 
summarizes the best practices from the monitoring, verification, and 
accounting of geologically stored CO2. Over the next year, 
the DOE and the RCSPs will work on additional best practices manuals 
for site characterization and selection, well construction, public 
outreach and education, simulation and risk assessment. These and other 
manuals will be developed and updated as the partnerships complete 
their large-scale field projects.
    We understand that the knowledge and experience gained has also 
been useful to the U.S. Environmental Protection Agency as it develops 
regulations for geologic storage of CO2.
                                 ______
                                 
       Responses of Kit Batten to Questions From Senator Bingaman
    Question 1. Having reviewed S.1013, do you feel that the role of 
the DOI and CCS on public lands is adequately defined in the bill to 
proceed with the liability program that is proposed? If not, what would 
you recommend?
    Answer. The authority in S. 1013 focuses on the role of the 
Department of Energy (DOE) in carrying out demonstration projects for 
the large-scale, commercial application of carbon capture and 
sequestration. In general, section 963A(g) of the bill allows the 
Secretary of Energy to provide indemnification to participants, and 
contains a definition of liability, an exception for gross negligence 
and intentional misconduct, and provisions for determining the fee to 
be paid by participants for indemnification and the use to which the 
fees collected must be put. In contrast, the Department of the Interior 
does not oversee the liability treatments of projects and participants 
under S. 1013, but instead is tasked with authorizing the siting of 
projects on federal land under its jurisdiction, consistent with all 
the applicable laws and management plans and subject to any terms and 
conditions the Secretary of the Interior deems necessary. In addition, 
the Department of the Interior is also given authority (at sec. 
936A(e)(7)) to determine whether the financial protections, such as 
bonding, provided by the participant for a project are acceptable. 
While we defer to DOE as to the overall position on the liability 
provisions in general, we believe that the role of the Department of 
the Interior on public lands is adequately defined in the bill to 
proceed.
    Question 2. The Section 714 (EISA of 2007) report states that many 
authorities currently exist to address CCS needs, such as for managing 
pipelines, roads, and infrastructure (and other issues). It goes on to 
state that existing authorities are not likely to address all the 
unique issues that carbon sequestration presents. Could you elaborate a 
bit more on what gaps exist in the existing authority that lawmakers 
need to address?
    Answer. While existing authority is likely adequate for many carbon 
capture and sequestration needs, there are situations unique to the 
development and more widespread use of this technique, and some of 
these may require legislative action. These include, for example, not 
only the need for clear leasing authority and a mechanism to provide 
for the long-term stewardship of sequestration sites, but:

   clarification of how long-term carbon storage may affect 
        other uses of the public lands, in particular the future 
        extraction of other minerals;
   clarification of the ownership of subsurface pore spaces in 
        split estate situations; and
   clarification of the ownership of sequestered CO2 and other 
        gases, and the resulting liability for any environmental damage 
        caused by the sequestered gas.
       Response of Kit Batten to Questions From Senator Murkowski
    Question 1. In competing for the FutureGen site selection, both 
Illinois and Texas passed state laws to assume ownership of, and 
liability for, the injected CO2.
    What is the Administration's position on the role of the states in 
terms of long-term stewardship of CCS sites, as compared to the federal 
role contemplated by S. 1013?
    Answer. The Department of the Interior's role in S. 1013 involves 
siting and other activities on the public lands that it manages. In 
this regard, the long timeframes envisioned for sequestration and the 
post-closure phase of facilities on public lands suggest that only the 
federal government will likely have the fiscal resources to manage the 
ongoing risk and offer the expectation of maintaining continuity of 
long-term stewardship across generations for these projects.
        Response of Kit Batten to Question From Senator Stabenow
    Question 1. While it is imperative to identify quality geological 
formations that will contain carbon with as little risk of leakage as 
possible, I would like to know more about other ecological and 
environmental risks that may be present. Mr. Moor of Southern Company 
mentioned in his written testimony the risks that injected carbon may 
pose to ground water. In a place such as Michigan where water is 
carefully monitored and protected, please tell me: what we need to do 
to ensure water quality while finding more opportunities for CCS?
    Has United States Geological Survey studied this issue?
    What have we learned from injecting carbon into old gas and oil 
wells?
    Are there adequate protections from the Safe Drinking Water Act? 
While EPA is not present here, is it already considering this?
    Answer. While the U.S. Geological Survey has engaged in a number of 
studies evaluating geological and geochemical factors that improve 
understanding of processes occurring during geologic storage of 
CO2, the potential risks associated with storage of large 
volumes of CO2, and some potential environmental impacts of 
geologic sequestration, the focus of USGS evaluations of these risks is 
generally at the regional or basin scale. The evaluation and mitigation 
of the risks at the scale of individual site-specific injection 
projects is generally covered by the Environmental Protection Agency. 
The USGS has also collaborated with the Department of Energy on 
sequestration projects such as the DOE-lead Geo-SEQ program, a 
consortium of National Laboratories working on monitoring technologies 
and simulation codes for CO2 storage; the DOE-sponsored Frio 
Brine project in Texas; and review of the efforts by DOE to develop 
several large scale field projects throughout the United States.
    However, there remains uncertainty with respect to the ability to 
sequester carbon dioxide in geologic reservoirs. Current outstanding 
research issues include:

   determining the capacity of seals to retain CO2;
   characterizing, on a regional extent, the integrity of seals 
        above potential storage systems;
   defining the potential for mobilization of trace metals and 
        organic materials by CO2 reactions with minerals or 
        dissolution of organic components;
   determining the need for new or improved tools to sample 
        formation waters for site evaluation and measurement, 
        monitoring, and verification during storage and following site 
        closure;
   improving prediction of the solubility of CO2 in 
        saline formations during and following injection;
   understanding the role of bacteria and other microorganisms 
        in water-rock-CO2 interactions relevant to 
        sequestration; and
   characterizing and understanding where fresh water/saline 
        formation boundaries occur in geologic basins throughout the 
        United States.

    The USGS is currently working on several of these issues.
    The underground injection of CO2 for purposes such as 
enhanced oil and gas recovery is a long-standing practice. However, 
CO2 injection specifically for geologic sequestration 
involves different technical issues and potentially much larger volumes 
of CO2 and larger scale projects than in the past. As noted 
above, research efforts to evaluate the technical aspects of geologic 
sequestration of CO2 are currently underway.
    Lastly, geologic sequestration of CO2 through well 
injection meets the definition of ``underground injection'' in section 
1421(d)(1) of the Safe Drinking Water Act (SDWA), and the EPA has 
authority for underground injection of CO2 under the SDWA 
Underground Injection Control program, and EPA and states, territories, 
and tribes that have primacy for these programs act as co-regulators to 
protect such waters from any potential endangerment from underground 
injection of CO2.
        Response of Kit Batten to Questions From Senator Bunning
    Question 1. Do you believe that there needs to be some type of 
expedited process for NEPA reviews of demonstration projects on BLM 
lands? Or a NEPA waiver for approved projects? As you know, these 
reviews are often used as a delaying tactic by environmental groups.
    Answer. The National Environmental Policy Act is intended to 
protect the public health and safety and environmental quality by 
ensuring transparency, accountability, and public involvement in 
federal actions and in the use of public funds. Given the complexity of 
the issues surrounding the development of these projects on public 
lands and the potential impacts of geologic carbon sequestration 
itself, it is important that applicable environmental reviews be 
carried out. These NEPA reviews will ultimately help the Department 
identify appropriate and specific areas for siting and development of 
carbon sequestration and capture projects.
    We recognize that applicable NEPA reviews must be completed in an 
expeditious manor. Following an orderly process, and based on sound 
information, these reviews will provide us with a solid foundation on 
which to defend our decision-making.






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