Growing Carbon Capture Industry Spurs States to Set Guardrails

States used the first half of the year to create a flurry of rules of the road for the country’s growing carbon capture industry.

The 2024 legislative session has been one of the busiest to date for carbon capture lawmaking, said Sarah Grey, partner at Arnold & Porter. She attributes the wave of interest largely to federal tax incentives: Carbon capture and sequestration technology, which stores carbon underground instead of releasing it into the air, now makes financial sense to companies in a way it didn’t in the past, she said.

While only a handful of bills have crossed the finish line, states have introduced nearly 100 carbon capture bills so far this year, said Patrice Lahlum, vice president of carbon management at the Great Plains Institute, a nonpartisan organization aiming to speed net-zero goals in the country.

“States are driven by various reasons, from economic interest to climate action,” she said in a statement. The common thread is that carbon capture and storage is “broadly acknowledged as viable and critical infrastructure.”

The US carbon capture industry was worth about $1.52 billion in 2023 and is expected to reach $11.89 billion by 2033, according to market insight company Precedence Research. The technology is key to the Biden administration’s new power plant standards, which would make coal plants capture nearly all their carbon emissions by 2039.

Climate activists, however, have decried carbon capture projects as a risky industry ploy to further reliance on fossil fuels. Illinois lawmakers, for instance, had to balance environmental concerns with a desire to regulate the industry and capture federal dollars, said Illinois state Sen. Laura Fine (D), who sponsored the legislation.

Illinois’s result was what Grey called the country’s widest ranging set of carbon capture guidelines. They included new environmental justice protections, monitoring requirements, and a moratorium on carbon dioxide pipeline construction until safety regulations are finalized.

“We need to do, as states, everything we possibly can to make sure that everything is done with the tightest safety measures possible,” Fine said.

Industry applauded Illinois’s action. The new law created a “much-needed regulatory framework” for projects to move forward, oil and gas giant BP said in a press release.

Project Primacy

Pennsylvania, Colorado, Alabama, and most recently Illinois have enacted legislative guidelines for underground carbon dioxide storage. The new laws address questions around environmental protections, underground mineral ownership, and other issues that developers need clarity on to move forward with projects.

States’ new regulations could set them up to petition the EPA for permitting authority, or “primacy,” over carbon capture projects.

The ownership and liability matter is centered in ongoing litigation in Louisiana, which gained primacy over carbon capture late last year. Environmentalists say releasing liability to the state lets companies off the hook too easily and could endanger public health, while the EPA says the state’s monitoring standards will protect public health. The parties say they’re open to oral arguments, but a date hasn’t been set.

Colorado plans to apply for primacy late this year or early 2025, according to a statement from the state’s Energy and Carbon Management Commission. Its 2024 legislation continued to build out a road map for that goal, addressing questions around site ownership, siting procedures, and more.

“The provisions within the law help facilitate a protective approach to Class VI well development in Colorado and add value to the state and its people,” according to a commission spokesperson.

Colorado, along with Alabama and Pennsylvania, will assume state ownership and liability for carbon capture and storage facilities after they cease operations.

In Alabama, facility ownership can be transferred to the state 10 years after the well is no longer active. In Pennsylvania, the waiting period is 50 years.

Having indefinite liability for multiple projects may deter developers from building facilities, so long-term stewardship by the state is a business-friendly, relatively low-risk decision, Grey said. Developers also generally have to meet certain standards to ensure the site is stable before the transfer happens, she said.

“In practicality, there’s very little that the state would be doing,” she said. “It’s generally not costly or burdensome.”