Analysis of Liability Regimes for Carbon Capture and Sequestration : A Review for Policymakers

Liability coverage for carbon capture and sequestration (CCS) is of paramount importance if the industry is going to mature and develop in a way that will allow it to make a significant contribution to mitigating climate change. Liability for CCS can be broken into two phases. The first phase is the short-term, which covers the pre-injection, injection, and closure stages of the project. The second phase is the long-term, or post-closure stage. Since pre-injection, injection, and closure occur over a relatively short period of time that may cover 20 to 30 years, typical liability instruments like private insurance, letters of credit, performance bonds, trust funds, and escrow accounts may be utilized. For the post-closure phase, which lasts indefinitely after the site has been closed, more enduring liability instruments must be used in order to ensure that adequate and long-lasting coverage is provided. Examples of long-term liability instruments may include industry-pooled funds to cover damages in the future and three tiers of liability that include a combination of private insurance, an industry pool for long-term monitoring and remediation of wells and accidents that cannot be covered by private insurance, and federal indemnity of CCS sites for accidents that are too large to be covered by the private insurance and industry pool.This paper describes these short and long-term insurance instruments and provides examples of how they have been used and proposed for CCS. This paper provides a critical review of the implementation of a variety of CCS liability schemes at the state and federal level in the US and within the EU. Finally, after reviewing existing and possible schemes, a proposal for a robust and comprehensive liability program for CCS is introduced