Carbon Sequestration in Texas: A New Era for CO2 Storage

The U.S. Environmental Protection Agency (EPA) Region 6 recently made a landmark move by issuing draft Class VI permits under the Safe Drinking Water Act (SDWA) for carbon sequestration projects in Texas. These permits are critical for enabling Direct Air Capture (DAC) projects, specifically for the underground injection of captured atmospheric carbon dioxide (CO2) near Odessa, Texas. This development signals a major advancement in the field of carbon capture and sequestration, not just for Texas but for the entire country.

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What is Direct Air Capture and Why Is It Important?

Direct Air Capture is a cutting-edge technology that extracts CO2 directly from the atmosphere. This captured carbon can be stored permanently in geologic formations or used in various applications such as enhanced oil recovery (EOR). The primary goal is to mitigate the impacts of climate change by reducing the amount of CO2 in the air. With growing concerns over greenhouse gases, DAC is emerging as a viable solution for large-scale CO2 removal.

The EPA’s draft permits in Texas represent a crucial step in scaling up these efforts. "These permits could open the door for more DAC projects to flourish in the region, creating opportunities for carbon credit generation and a clearer regulatory path for future projects," said Eric Christensen from Beveridge & Diamond.

How Does the EPA Regulate CO2 Storage?

The EPA regulates CO2 storage projects through its Underground Injection Control (UIC) program, which falls under the SDWA. There are two main types of wells used for CO2 injection: Class II and Class VI. Class II wells are often associated with oil and gas production and enhanced oil recovery, while Class VI wells are specifically designated for the geologic storage of CO2. These wells must meet stringent requirements to ensure the protection of underground sources of drinking water, a key concern when injecting substances deep into the earth.

Currently, only a few states like Louisiana, North Dakota, and Wyoming have been granted “primacy,” meaning they can administer their own UIC programs for Class VI wells. Texas is actively seeking this primacy but, for now, the EPA continues to oversee these projects within the state.

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The Role of Texas in Carbon Sequestration

Texas is no stranger to large-scale energy projects, and carbon sequestration is no exception. The state has a significant interest in securing primacy for Class VI permits, and until that happens, the EPA’s Region 6 remains responsible for overseeing these efforts. The Railroad Commission of Texas, however, holds primacy over Class II wells, which are often used in oil and gas-related CO2 storage.

"Texas has the right geological makeup to support large-scale carbon sequestration," stated BROOK DETTERMAN from Beveridge & Diamond. The state has already demonstrated its capabilities in regulating Class II wells and is working to solidify its role in the Class VI realm. The potential for carbon storage in Texas is immense, particularly given the vast geological formations ideal for long-term CO2 storage.

Leasing Opportunities for CO2 Storage in Texas

One of the significant challenges in carbon sequestration is determining ownership of underground pore space, the voids within geological formations where CO2 can be injected. In Texas, there is ongoing debate about whether surface landowners or mineral rights holders own these spaces. This lack of legal clarity has somewhat hindered investment in carbon capture and storage (CCS) projects. The Texas Supreme Court is set to hear oral arguments on this issue in October 2024, which could bring much-needed clarity to the state’s regulatory framework.

Despite the legal uncertainty, Texas is moving forward with ambitious plans for CO2 storage. In June 2024, the Texas General Land Office announced a request for proposals to lease over one million acres of offshore land for carbon sequestration projects. This includes areas around Brownsville, Matagorda, Bolivar, Freeport, and Galveston, with a proposal submission deadline of October 3, 2024. This move is expected to drive significant investment in carbon storage projects, particularly as federal incentives continue to grow.

Federal Incentives for Carbon Sequestration

One of the driving forces behind the rise of carbon capture and storage projects is the federal 45Q tax credit, which was significantly expanded under the Inflation Reduction Act (IRA). For DAC projects, the credit has been increased from $50 to $180 per metric ton of CO2 sequestered in geological formations. For CO2 used in new products or stored through EOR, the credit stands at $130 per metric ton.

This increase in tax credits is a game-changer for companies considering investing in carbon sequestration technologies, according to Amber Ahmed from Beveridge & Diamond. "The financial benefits are now more substantial, with lowered thresholds for eligibility and more flexibility in how the credits can be utilized," she explained. These credits provide a powerful incentive for industries looking to offset their carbon emissions while making meaningful contributions to climate change mitigation efforts.

Future Outlook for CO2 Storage in Texas

Texas is uniquely positioned to lead the nation in carbon sequestration, thanks to its vast geological resources and established regulatory frameworks for oil and gas. The issuance of these draft Class VI permits by the EPA represents just the beginning of what could be a significant expansion of carbon capture and storage activities in the state. With federal incentives in place and new leasing opportunities on the horizon, Texas is well on its way to becoming a central hub for carbon sequestration in the U.S.

While challenges remain, particularly in terms of regulatory clarity regarding pore space ownership, the future looks promising for DAC and other CCS projects. Lauren Lankenau of Beveridge & Diamond highlighted the importance of continued investment and innovation in this space: "As the legal and regulatory frameworks evolve, we expect to see a surge in carbon capture projects that will help mitigate climate change on a large scale."

Texas as a Pioneer in Carbon Sequestration

In conclusion, Texas is poised to play a critical role in the U.S. carbon sequestration landscape. With the issuance of the first draft Class VI permits by the EPA, the state is moving towards establishing itself as a leader in this innovative field. Federal incentives, combined with the state’s geological advantages, make Texas an ideal location for these projects. As regulations become clearer and more investments flow into the region, Texas will likely continue to expand its carbon sequestration efforts, providing valuable solutions for reducing greenhouse gas emissions.