Information about http://pdf.wri.org/ccs_liability_trabucchi.pdf
FINANCIAL RESPONSIBILITY: …
Tags: congress, financial responsibility, guarantees, indecon, industrial economics, polluter pays principle, proper attribution, safe management, september 29, storage, washington dc, world resources institute,Pages: 7
Language: english
Created: Fri Nov 10 11:39:36 2006
Display cached document
Page 1
Page 2
Page 3
Page 4
Page 5
Page 6
Page 7
FINANCIAL RESPONSIBILITY:
CHALLENGES & ANALOGS FOR CCS
World Resources Institute
Washington, DC
September 29, 2006
Chiara Trabucchi
Industrial Economics, Incorporated
ctrabucchi@indecon.com | 617.354.0074
Key Points
Overview
Discussion of Analogs
Implications for CO2 Capture and Storage
(CCS) Technologies
IEc | 1
IEc
Terms of Use | May be redistributed only with proper attribution to the author. www.indecon.com
Overview
Nearly all industries operate facilities that
have finite physical lives.
Congress has mandated that owners/
operators provide guarantees for the safe
management of their facilities.
Intent. "Polluter Pays" principle
Intent. Minimize the number of orphaned/
abandoned facilities
Intent. Minimize environmental risks from
facility releases
IEc | 2
Market Impacts of
Effective Financial Responsibility
Capital Investment. Design, site, and operate
facilities that minimize environmental costs and
reduce the likelihood of environmental injury.
Deterrence & Precaution. Encourage
operating decisions that consider the risk of
environmental costs.
Optimal Pricing & Consumption. Stimulate
firms to appropriately internalize costs, thereby
minimizing excessive consumption of
environmentally damaging goods.
IEc | 3
IEc
Terms of Use | May be redistributed only with proper attribution to the author. www.indecon.com
Implications for CCS Technologies
Regulatory/financial framework will depend on:
The nature of risks from CCS operations, failures.
The ranking/prioritizing of risk.
Who bears responsibility for mitigating risk.
Different frameworks require different
investments with respect to regulatory
oversight.
Several analogs exist, each of which is in
response to specific risk profiles - Applicability
to CCS is not perfect, all have limitations.
IEc | 4
A History of Financial Responsibility
1954 | AEA Amendments
Nuclear Decommissioning
1957 | Price-Anderson
Nuclear Indemnity
1974 | SDWA
Underground Injection
Control Program
1976 | TSCA/RCRA
Subtitles C, D, & I
1977 | SMCRA
Mining & Reclamation
1980/1986 | CERCLA/SARA
Superfund
1990 | OPA
Offshore Facility Oil Spills
IEc | 5
IEc
Terms of Use | May be redistributed only with proper attribution to the author. www.indecon.com
Notable Regulatory Frameworks
1982 | RCRA
Subtitle C, 40 CFR 264/265
1983 | SMCRA
30 CFR 800
1984 | SDWA
40 CFR 144
1988/1998 | AEA
10 CFR 30, 40, 70, 72
1991 | RCRA
Subtitle D, 40 CFR 258
1998 | OPA
30 CFR 253
Natural Gas Storage
State Specific
CERCLA/SARA
108(b) IEc | 6
Notable Regulatory Frameworks
Prospective in nature, RCRA establishes a regulatory
structure for managing solid and hazardous wastes.
Subtitle C provides "cradle-to-grave" requirements; Subpart
H details financial responsibility.
All but two states are authorized to implement RCRA.
Retrospective in nature, CERCLA, establishes
requirements for abandoned hazardous waste sites,
including a trust fund for clean up of these sites.
The Superfund tax, which expired in 1995, included a
petroleum excise tax, a chemical feedstock tax, and a
corporate environmental income tax (CEIT).
CERCLA 108(b) provides EPA with the authority to
promulgate regulations for financial responsibility.
IEc | 7
IEc
Terms of Use | May be redistributed only with proper attribution to the author. www.indecon.com
Relevant Analogs for CCS
RCRA [Prospective] CERCLA [Retrospective]
Strengths Strengths
Preventative in nature - Presumes Hybrid financial instruments (third
risks/attendant costs are manageable party/self insurance)
Defined liabilities - Lends itself to "risk Ability to shift with rapidly changing
transfer" instruments market environments
Offers a hedge against bankruptcy/
corporate dissolution Lessons
"Legacy" releases - Contamination is
Lessons a certainty
Prescriptive, inflexible Inconstant cost estimation/disclosure
1982 - Omits recent changes in No hedge - Financial distress/
financial reporting/accounting bankruptcy may lead to unfunded
standards liabilities (Superfund)
Miscellaneous Receipts Act Inconsistent application
McCarran-Ferguson Act
IEc | 8
Relevant Analogs for CCS
The Price-Anderson Act caps accident liability
for entire nuclear industry at a PV of < $7
billion (~$10b nominal).
Indemnity program relies on premiums from
individual operators, and industry-wide
retrospective charges.
Government may delay further collections to
mitigate financial hardship to the industry.
While aspects of the indemnity program (risk
pooling) may be appropriate, a measured
approach is necessary.
IEc | 9
IEc
Terms of Use | May be redistributed only with proper attribution to the author. www.indecon.com
Relevant Analogs for CCS
Underground natural gas storage may be an
appropriate physical analog to CCS; Lack of
consistent framework poses notable limitations.
UIC Class I, Hazardous Waste Prescriptive
regulations at 40 CFR 144.63 that mirror the
RCRA framework.
UIC Class II, Oil- and Gas-Related
Performance standard at 40 CFR 144.28(d).
"Federal Financial Responsibility Demonstrations for Owners
and Operators of Class II Oil- and Gas-Related Injection Wells"
EPA 570/9-90-003, May 1990.
IEc | 10
Implications for CCS Technologies
Flexible system that is self-implementing,
transparent and integrates lessons learned:
Realistic bond valuation; Third-party cost
estimation.
Adequate collateralization of aggregated liabilities.
Self-guarantees may not respond well to the
sudden impact of external (market) shocks.
Appropriate risk diversification in (re)insurance
markets.
Consider hybrids Sinking fund.
IEc | 11
IEc
Terms of Use | May be redistributed only with proper attribution to the author. www.indecon.com
Discussion Questions
Is financial responsibility necessary?
CO2 - Commodity or Waste
What is the nature of the risk/liability?
Capping & Sealing/Plugging & Abandoning
Measuring, Monitoring, and Verification (MMV)
Catastrophic Releases
Legacy Liabilities from Pre-Existing Wells
Long-Tailed - Uncertain Risk Profile
Can the liability be reasonably estimated?
IEc | 12
IEc
Terms of Use | May be redistributed only with proper attribution to the author. www.indecon.com