Draft Summary of conference call …

                        Draft Summary of conference call
                            Liability Working Group
                      WRI Carbon Capture and Storage Project
                                      6/29/06


Project website: http://carboncapture.wri.org

Participants on call:
Sally Benson, Judith Bradbury, Heleen de Coninck, Julio Friedman, Neal Grasso, Kate
Larsen, Jeff Logan, Liz Martin, Elizabeth Wilson, Sarah Wade, Karen Utt

I. Opening Exchange
Feedback on GHGT-8 conference in Norway, held 19-22 June 2006. Over 1000
participants attended, with significantly expanded presence from industry. Documents are
available at: http://www.ghgt8.no

II. Siting/MMV Working Group Scenarios
The Siting/MMV working group has completed 3 draft scenarios to stimulate thinking on
what's required for CCS project site certification. The 3 scenarios include an EOR
application in the Gulf Coast region, a greenfield saline aquifer in the Midwest, and a
depleted gas field in the Western states. The scenarios are based on actual field
conditions, but specific location names will not be revealed in order to prevent biasing of
ongoing and future projects. Additional background material is being gathered before
role-playing of the scenarios at a workshop to be held in early September. The scenarios
will be acted out and presented to regulators for consideration. Perspectives from the
financial community and average citizen will also be gathered. The process will shed
light on what additional information is needed, and what safeguards are required to deal
with risk.

III. Review of Liability Working Group Goals
Our ultimate objective is to produce a set of guidelines that can be used by regulators and
policymakers in overseeing CCS projects. Along the way, we will have opportunities to
assist specific demonstration and commercial projects, and help to craft pieces of
legislation at both the state and federal level. We should actively seek out these
opportunities and contribute strategically.

Although we did not discuss this in the conference call, recent developments indicate that
it would be a good time to convene a special group of stakeholders to address practical
liability in CCS projects. WRI plans to convene a special CCS liability workshop during
the week of 25-29 September to consider the issues with Congressional staff, state and
federal regulators, industry, NGOs and the research community.
IV. State Liability Issues
In order to focus our previous research on liability issues, we thought it would be helpful
to narrow our research to a handful of states that best represent a range of regulatory and
legal treatment of CO2 injection and its analogs. We decided to frame our research
around the three scenarios from the Siting & MMV group (saline, EOR, EGR) so that the
work from both groups can eventually be linked to create a comprehensive overview of
the range of existing regulatory and technical issues associated with CO2 sequestration.

We chose 3 states for each scenario that span different levels of regulatory oversight as
well as regional variability. For each state, there is a list of issues/questions that can be
answered by examining existing regulation, case law, analogs, and through conversations
with state regulators. Once completed, we will have a matrix that answers the basic
questions about how liability is currently addressed in each state based on the type of
scenario and that indicates where additional information is necessary.

Volunteers agreed to the following responsibilities:
           CO2-EOR                              Saline                              EGR
 Texas    California Wyoming     Illinois    Indiana     Kentucky    California   Michigan   Louisiana
          Heleen                                                     Heleen
          Elizabeth  Kate                   Judith       Judith      Elizabeth
 Kipp*    Jeff       Karen       Liz        Sarah F.*    Sarah F.*   Jeff         Sarah W.      Neal
* - assigned, but needs confirmation

Volunteers agreed to gather information on each state-specific set of liability issues
according to the preliminary set of issues in the matrix (Attachment I). Other issues can
be added or deleted to the list if needed. We set a tentative target of the end of August to
complete the matrix of information. A mid-course conference call in late July will refocus
the effort and confirm progress. This work could contribute substantially to the WRI
workshop in late September.

Kipp Coddington could not join us on the call but has promised to provide a memo in
mid-July on his findings on potential liabilities related to CO2-EOR. A summary of the
bullet points that the memo will address is provided in Attachment II.

Next Call: Week of 25-30 July. Contact Jeff Logan at (202)729-7689 or
jlogan@wri.org with any questions.
                                     Attachment I: Template of issues for state liability consideration

                                                           CO2-EOR                           Saline                           EGR
                                                  Texas   California Wyoming   Illinois   Indiana   Kentucky   California   Michigan   Louisiana
Regulatory authority (who regulates what)
Experience with CO2 injection - existing
projects, institutional capacity/resources to
regulate
Surface liability (damage to agricultural
lands, residential, public safety)
Subsurface liability (geophysical trespass,
hydrocarbon damage, groundwater
contamination)
Existing well abandonment regulations
Existence of insurance/indemnity bonds/fees
for plugging and abandonment
Accounting linkages (existing CO2
regulations that may address liability directly
or indirectly)
CO2 liability (state or private treatment)
Existing monitoring regulations
                                   Attachment II:

               Summary of CO2 Injection Liability Findings for WRI
                                June 29, 2006

Follow is a bullet-point summary of our findings regarding potential liabilities
related to the injection of CO2 for enhanced oil recovery (primarily using the
analog of water injection). We also looked at the broader question of potential
liabilities for any type of geologic sequestration of CO2.

There are virtually no cases involving CO2 injection for oil recovery -- those that
existed almost exclusively dealt with royalty disputes for oil/gas generated during
recovery.

We used Texas as a model. Comparable case law/regulations exist in other
States.

·   Damage to subsurface freshwater resources (source: TX Railroad
    Commission regulations on gas/water injection)

·   Endangerment to oil, gas, or geothermal resources (source: TX Railroad
    Commission regulations on gas/water injection)

·   Waste of oil/gas due to injection -- due to migration into lands not used for
    oil/gas production (source: TX Railroad Commission regulations on
    gas/water injection)

·   Escape of injection material to areas outside the injection zone -- in Texas,
    this is sufficient grounds for denial of an injection permit (source: various)

·   Threat of wells as a pathway for other forms of contamination (improper
    abandonment, improper maintenance, etc.) (source: TX Railroad
    Commission regulations on gas/water injection)

·   Increased risk of seismic activity (source: hypothetical; several scholarly
    articles where carbon increases pressure on subsurface formations; case law
    or regulations)

·   If CO2 is classified as a waste or hazardous substance, then injection as
    "storage," "dumping" or "release" would create numerous statutory
    obligations and liabilities under laws such RCRA, CERLA and their State
    counterparts (source: statutory analysis of non CO2-laws)

·   Releases endangering human health (source: hypothetical -- naturally-
    occurring CO2 release from African lake caused mass asphyxiation in 1995,
    often raised as source of concern)


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·   Releases endangering property (source: hypothetical -- sudden releases of
    CO2 under subsurface pressure could damage surface property; no or limited
    case law/regulations)

·   Ownership of gas once injected into subsurface ­ person who injected? Loss
    of title, etc. (source: hypothetical, save for the new Texas law; no case law)

·   Liabilities related to ocean dumping/offshore disposal of "waste" if CO2 is
    deemed a waste under various international conventions and treaties
    (sources: scholarly articles ­ issue remains unresolved)

·   Common law tort theories of liability, as have been alleged in cases of
    underground injection of water (trespass, nuisance, conversion) (sources:
    numerous for water, none for CO2)

·   Takings claims, where a permit issued for injection leads to a potentially
    compensable taking of a neighboring landowner's property (example source:
    Montgrue v. Monsanto, 249 F.3d 422 ­ court denied takings claim against
    Monsanto, as it was not a state actor, but did not reach whether state could
    have been properly sued)

·   Potential products liability for impurities in the CO2 gas stream (impurities
    may result in subsurface contamination, harmful interactions with oil/gas, etc.)
    (source: legal reasoning; no case law or regulations)

·   Environmental liability for injection of potential impurities into earth
    constituting disposal of hazardous waste or release of hazardous substance
    (regardless of whether CO2 is deemed a waste) (source: legal reasoning; no
    case law or regulations)

·   Strict liability where injection/storage of CO2 is considered an ultra hazardous
    activity (source: legal reasoning; no case law or regulations)

                                                 Kipp Coddington
                                                 Ryan Van Meter
                                                 Alston & Bird




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