Climate Change and Carbon Sequestration: Assessing a Liability Regime for Long-Term Storage of Carbon Dioxide

Abstract:     
As the world struggles with how to address climate change, one of the most significant questions is how to reduce increasing levels of carbon dioxide in the atmosphere. One promising technology is "carbon capture and sequestration" (CCS) which consists of capturing carbon dioxide (CO2) emissions from power plants and industrial sources and sequestering them in deep geologic formations for long periods of time. Areas for potential CO2 sequestration include oil and gas fields, saline aquifers, and coal seams. As Congress and the private sector begin to spend billions of dollars to research and deploy this technology, there has been insufficient attention paid to how to structure legal liability for the short-term or long-term risks associated with the geologic sequestration of CO2 in connection with CCS. Until now, federal and state legislators, when they have acted at all, have appeared to be in a rush to limit corporate liability for potential harm in order to encourage the development of CCS. We take a different approach. In this Article, we survey the existing environmental law and tort law liability regimes that may cover potential harm from escaping or migrating CO2. We conclude that while existing liability regimes are insufficient on their own to govern the CCS industry, existing federal and state environmental and tort liability can provide important risk management tools and serve as safeguards to private parties and state and local governments in the event of harm. Thus, state and federal legislation specific to CCS should leave in place this basic liability for full-scale commercial CCS projects. We also propose an adaptive governance model at the federal level for integrating several different compensation mechanisms including bonding, insurance, and pooled federal funding into commercial CCS project management to better provide financial security to investors without destroying existing liability protections for those who may suffer harm from CCS. This proposal offers a starting point for developing a model to integrate and manage liability for the nascent CCS industry.

Number of Pages in PDF File: 78

Keywords: carbon, capture, sequestration, climate change, global warming, tort liaiblity, insurance, bonding, property rights, geologic sequestration

JEL Classification: K13, K11, K23, K32, L71, L94, L98, O14, O31, Q20, Q32, Q38, Q40

Accepted Paper Series