Financial Responsibility for Class VI: Selection of Financial Instruments and Impact on Cost of Class VI Operations

Abstract

EPA's Class VI well regulations govern geologic storage of captured carbon dioxide (CO₂) in underground reservoirs. These regulations, designed to protect underground sources of drinking water (USDW), require the operator to make a demonstration of financial responsibility upon application for a Class VI injection well permit. The purpose of financial responsibility is to provide funding to pay a third party to complete and fulfill four covered tasks should the operator fail to do so: corrective action (remediation of old wellbores), plugging of injection wells, post-injection site care (PISC) and site closure, and emergency and remedial response (ERR). Six financial instruments are recognized by Class VI regulations for satisfying financial responsibility requirements: self-insurance (financial test and corporate guarantee), trust fund, escrow account, insurance, surety bond and letter-of-credit. With the FE/NETL CO₂ Saline Storage Cost Model, a modeler can select one or a combination of the financial instruments available in the model for meeting financial responsibility requirements. Initial modeling of CO₂ storage costs showed that the trust fund option more than doubled the cost of storage as compared to storage cost utilizing self-insurance. Subsequent modeling was conducted to evaluate different combinations of these financial instruments to address different aspects of financial responsibility. For this analysis, insurance is the only instrument for ERR. Self-insurance, trust fund, and escrow account as well as the modified trust fund and escrow account are used for PISC and site closure due to the long time duration of this particular project stage and the fact that the costs of PISC occur after injection ceases. The rate of return for the trust fund and escrow account were varied to determine how this rate affected the overall cost of CO₂ storage. The use of a letter of credit, surety bond, or insurance as well as self-insurance to meet financial responsibility for injection well plugging and corrective action, in combination with a trust fund or modified trust fund for PISC, was modeled. Self-insurance provides the low cost option to the operator but presents a potential risk to EPA as to whether or not the operator will still be a viable business with a sufficiently strong balance sheet when it is time to perform. The return on a trust fund or escrow account can work to the storage operator's advantage reducing overall storage costs.

AAPG Datapages/Search and Discovery Article #90195 © 2014 Eastern Section Meeting, London, Ontario, Canada, September 27-30, 2014