States Make Permitting Push to Attract Carbon Capture Projects

States are seeking to speed up approval of carbon capture and sequestration projects by taking the role from the federal government, a bid to make their states more attractive to industry developers.

The new interest is driven by tax credits that were expanded and extended under the 2022 climate bill, at least $12 billion in grants from the 2021 infrastructure package, and the race to get ahead of possible new EPA rules that tout carbon capture as a way to drastically cut power plant emissions.

At least eight states have called on the Environmental Protection Agency to grant them authority, or “primacy,” over Class VI wells, a classification of facilities that inject and store carbon dioxide underground instead of releasing it into the air.

Currently, the EPA is responsible for permitting Class VI carbon capture facilities in every state except North Dakota and Wyoming, which were granted primacy in 2018 and 2020, respectively.

Texas, Louisiana, Arizona, and West Virginia are in the EPA’s application or pre-application process. Other states, including Pennsylvania and Colorado, have recently shown interest in taking the reins on carbon capture projects, either by passing legislation or notifying the agency of their intent.

More, like Montana and Nebraska, are propping up the legislative framework that could serve future projects and programs for carbon capture and sequestration, or CCS, according to data from law firm Arnold & Porter.

Competition among states to attract industry developers has boosted the push for state primacy, carbon capture backers say.

Companies investing in CCS facilities—such as ExxonMobil Corp., Occidental Petroleum Corp., and Chevron Corp.—tend to flock to states that run their own programs, said Matt Fry, senior policy manager at the Great Plains Institute, a nonprofit group focused on the energy industry.

But some warn that state agencies can’t be trusted to permit their own projects. Two Texas congressmen in a letter Monday urged the EPA to reject their state’s bid for carbon capture primacy, saying that regulators can’t be trusted to uphold environmental justice standards.

Permitting Authority

Still, for states like Pennsylvania, which has a glut of heavy industry to steward into the future, CCS technology represents a chance to make quick progress on climate goals without destabilizing the economy.

“The US can’t do it without Pennsylvania, and Pennsylvania can’t really do it without carbon dioxide capture and sequestration,” said Max Drickey, energy policy fellow at nonprofit Team PA.

The EPA’s Underground Injection Control program, the main permitting scheme for CCS projects nationwide, is moving slowly as it navigates highly technical review processes, resource shortages, and a general lack of experience permitting Class VI wells, said Sarah Grey, partner at Arnold & Porter.

The agency has permitted six Class VI wells over the last 12 years—only two of which opened—and it has a queue of more than 80 applications pending. North Dakota, in contrast, has approved five since its own program started in 2018.

States hope they could “help that queue move faster” by doing it themselves, Grey said.

Pennsylvania’s Carbon Capture Push

Pennsylvania, the birthplace of America’s oil industry, is primed for Class VI primacy, Fry said.

In April, Pennsylvania’s environment department told the EPA that it wanted its slice of a $50 million grant for exploring a CCS permit program. It’s also competing for federal dollars set aside for regional hydrogen hubs, a Department of Energy effort to decarbonize energy production through hydrogen using CCS technology.

“The subsidies are impossible to ignore, even if we wanted to continue business as usual,” Team PA’s Drickey said.

The commonwealth’s economy is built on industries like natural gas, coal, steel, paper, and minerals. As a result, it’s the nation’s second-largest energy producer and fourth-largest CO2 emitter.

It’s those same industries that are largely fueling Pennsylvania’s push for carbon capture investments, Drickey said. They’re worried about possible “stranded assets” like fossil fuel-fired power plants, which could become liabilities as the clean energy transition accelerates.

For instance, a Shell PLC subsidiary and Archaea Energy met with the Pennsylvania Department of Environmental Protection last year to discuss building a CCS project in Beaver County. That’s the location of Shell’s multibillion-dollar petrochemicals plant, which violated air pollution standards almost immediately after opening last year, state regulators said.

Roping in the Legislature

To control Class VI wells, states like Pennsylvania will need help from their agencies and legislatures to create permit programs worthy of industry interest.

Pennsylvania’s primacy efforts met resistance from 22 groups that expressed concern that the environment department lacked the proper expertise and staffing to run a Class VI scheme.

It involves a “really rigorous amount of technical review” for states to craft and run this type of permitting program, Grey said. State-level programs must be at least as stringent as the EPA’s, which means agencies need staff with special expertise in groundwater safety, geology, and more.

Two key issues also need to be addressed in the legislature: who owns the underground pore space where the captured carbon will go, and who is responsible for the carbon storage facility after it’s full.

At least eight states already have a legislative framework to address those two questions, and every state’s law essentially says the same two things: whoever owns the surface land also owns the underground pore space, and the state can assume liability for facilities if the systems pass safety and compliance checks.

In Pennsylvania, a bill that outlines the same two rules is moving through the state Senate.

Tax Credits Fuel Wave of Interest

For states where carbon capture makes sense, the race is on to prop up programs. Emission reduction goals and mandates are creeping up, and developers must start building CCS projects by 2033 if they want to use the recently enhanced CO2 storage tax credits under Section 45Q of the US Internal Revenue Code.

Individual states are intimately familiar with their own geology and natural resources, which would allow permits to move more “expeditiously” and “competently,” said Rob Black, New Mexico Chamber of Commerce president. Those factors are key for industry players to put money into projects, costs for which can reach billions.

But not every state is right for Class VI primacy, so the wave of interest will likely peak in the “near future,” Fry said. But he said states with a robust oil and gas economy or the right geology are well positioned to benefit from their own programs.

Texas, for example, is the nation’s largest crude oil producer, and Pennsylvania has an 88.5 billion-metric-ton underground CO2 storage capacity, according to the Great Plains Institute. Oklahoma, Illinois, Colorado, Indiana, and Utah are also good candidates for their own programs down the road, Fry said.

With the 2033 tax credit time constraint, “the financials won’t work” if states have to play by the EPA’s permit program, which can take the better part of a decade to move through, Black said.

Ultimately the state would lose a “key spoke” in its climate plan if costs don’t pencil due to tax credits expiring and permit bottlenecks, he said.