CCS Policy Development Approach & Preliminary Results

1. CCS Policy DevelopmentApproach & Preliminary Results

2. Agenda • Clarify what to do in Phase 1? • Make sure everyone is on the same page! • Illustrate how to complete Phase 1? • Approaches (Methodology) • Preliminary findings on “Relevant Issues of Concern for Policy Making” (i.e. the Drivers) • Propose meeting schedule

3. Alternative 1 What to do in Phase 1? Review on Existing Policy in Other Economies • Economic & Finance Theory Review on Existing Legislation & Development Work Packages Generic Drivers Local Gaps Economic Analysis CCS Policy MC inputs Alternative 2 suggested Review on Existing Policy in Other Economies • Economic & Finance Theory Review on Existing Legislation & Development Work Packages Generic Drivers Local Gaps Economic Analysis CCS Policy MC inputs

4. Framework Licensing Development • Main drivers • Asset • Finance • Technology Licensing Operation Development Licensing Usage & Storage Operation Development Closure Post-Closure Transport Operation Closure Capture Closure • Main interactions • Renewable Energy • Int’l CarbonOffsetting • Int’l Law • Electricity & Water Markets Source Time

5. Asset Offtaker Ownership Usage (e.g. EOR) CO2 Specification Int’l Law Asset Monitoring & Reporting Ownership Facility EHS Liability Access

6. Finance Scale Cost Public Engagement Uncertainty & Volatility Finance Risk Sharing Electricity Revenue Gas Domestic Supply & Demand on CO2 Oil CO2 Value Water Int’l Carbon Offsetting

7. Technology Pilot Program Next generation Int’l Collaboration Technology Existing Tech Development Domestic R&D Commercially Feasible Diffusion Tech Transfer

8. Next Steps • Step 1: Identify Driver Associations • Couple the three dimensions of drivers • Develop a Matrix to illustrate the associations • Step 2: Identify Working Packages • Criteria of Parceling: • Interdependency • Substitution of association • Time • Step 3: Develop Terms of Reference

9. Matrix

10. Development of a framework for regulating CCS projects in should be guided by… • Emerging international principles: • To ensure the high quality green reputation of projects currently under development • To ensure technology developed can be successfully exported • To ensure qualification for credit via international carbon trading schemes (i.e. CDM) • The framework must strike a balance: • If too stringent then the potential for large scale storage will not be realised. • If not stringent enough then public acceptance will not be achieved DRAFT HEI Confidential

11. has choices for regime design but the end result must provide assurance along the value chain… Create an umbrella framework that all sectors must comply with or, if amending existing regimes, central agency to provide assurance of value chain Central Allow relevant agencies to create their own framework consistent with current regulatory arrangements Amend existing regimes CO2 transport Regulated by authority in cooperation with authority CO2 storage underground Self-regulation by authority with 3rd party verification CO2 capture on site Regulated by authority Assurance required across the entire value chain DRAFT HEI Confidential

12. There are a number of international regulatory mechanisms under development that can guide , particularly in the area of storage… • CDM New Methodologies • being developed by private industry for specific projects such as the BP Insalah Project new methodology. • Government regime developments: • US Federal legislation, Australian Commonwealth legislation and the EU Directive • International standards • IPCC Guidelines, DNV Guidelines …which one of these will meet CDM requirements is still uncertain but third party verification of anything short of regulation may be required. DRAFT HEI Confidential

13. When considering framework development, it is useful to understand what this will practically involve…take the upstream gas storage example as follows… • This draft framework has been developed by BP Alternative Energy, Rio Tinto and Hydrogen Energy that explores issues which would need to be included in an upstream regulation, guideline or CDM Methodology to give the relevant levels of assurance in that sector. This was created to: • Facilitate assessment of new framework proposals • Provide a generalised example that can be adapted to local situations • It is based on EU Draft CCS Directive (January 2008) and aims to comply with IPCC 2005 guidelines for storage regulation • It covers what are traditionally seen as the hauthoritylineissues that will have to be covered by any framework that intends to receive international acceptance: • Permitting storage reservoirs • Reservoir characterisation and risk assessment • Operation and monitoring of CO2 storage reservoirs • Reservoir closure and transfer of responsibility • The following summarises key points under consideration; these are presented to illustrate scope of coverage, rather than any firm recommendation DRAFT HEI Confidential

14. Permitting CO2 storage reservoirs • Reservoir Evaluation Permit (may not all have direct relevance for ) • Exclusive right to evaluate for fixed term (one extension) • Defined area, all depths • Competent Authority assures no conflicting uses • Exclusive right to apply for a Storage Permit • Storage Permit • Previous Reservoir Evaluation Permit not required • Exclusive right for single operator to inject a CO2 stream • Estimated maximum injection volume (can be amended) • 20 year term, renewable for multiple periods of 10 years • Financial and technical capability of Operator • Not required for EOR, but needed for emissions avoidance credit and continued injection, post oil production DRAFT HEI Confidential

15. Reservoir characterisation & risk assessment • Identify potential pathways for surface leakage or contamination of subsurface resources by stored CO2 (or displaced fluids) • Dynamic model(s) to predict CO2 behaviour over short (decades) and long (centuries) term • Static description based on reservoir-specific data • Consider coupled geomechanical and geochemical processes • Periodically re-calibrated to monitoring data • Hazard characterisation and risk assessment • Range of scenarios covering subsurface uncertainty • Likelihood of leakage or contamination events • Magnitude of leakage or contamination • Potential impacts on human health, safety and environment DRAFT HEI Confidential

16. Operation of CO2 storage reservoirs • CO2 stream • No addition of “waste” substances for disposal • Annual reporting of quantity and composition • Monitoring • To mitigate key risks of surface leakage or subsurface contamination • Monitoring Plan approved by Competent Authority and updated as necessary • Report any significant deviation from expected behaviour and provide volume estimates of leakage or subsurface contamination • Remediation • Corrective measures for any significant leakage or contamination, according to plan approved by the Competent Authority • Corrective measures carried out by Competent Authority if Operator fails to implement • Financial security from Operator DRAFT HEI Confidential

17. Monitoring Plan • Monitoring Plan links identified risks to measurement technologies with spatial, temporal sampling rationales • Monitored parameters include • Fugitive emissions from facilities • Volume and mass of CO2 injected • CO2 composition • Reservoir pressure and temperature • Monitoring strategy based on reasonable best practice, considering • Surface detection and flux measurement of CO2 • Subsurface location of CO2 and migration pathways • Volumetric distribution of CO2 saturation • Monitoring Plan updated when new CO2 migration pathways or flux rates are identified DRAFT HEI Confidential

18. Reservoir closure • Permission to commence Decommissioning • Monitoring observations required after final cessation of injection • Final risk assessment and specific technical criteria defined in Storage Permit to demonstrate: all leakage or contamination characterised and mitigated; stabilising CO2 plume within license boundaries; no significant risk of future leakage or contamination • Competent Authority issues permission to decommission when criteria are met • No further monitoring or intervention capability required after permission to decommission • Transfer of responsibility • Once decommissioning complete, Operator applies for transfer of responsibility • Criteria are satisfactory abandonment • No further liability for CO2 leakage nor contamination or other liabilities • Financial security ends with transfer of responsibility DRAFT HEI Confidential

19. Financial Incentives & Mechanisms to Support CCS Projects Application of Funds (Note: Effective support will need to address initial capital increment, ongoing cost penalty and carbon risk) DRAFT HEI Confidential

20. Financial Incentives & Mechanisms to Support CCS Projects Application of Funds (Note: Effective support will need to address initial capital increment, ongoing cost penalty and carbon risk) DRAFT HEI Confidential

21. DRAFT HEI Confidential

22. Conclusions • The key drivers and objectives of any framework must include: • protecting green reputation of projects currently under development • gaining any value available under CDM. • Any framework will have to: • avoid crippling the industry by setting the standard too high • ensure public support for the technology by being sufficiently robust and transparent • Consider whether centralises the framework of CO2 capture, transport and storage along the value chain or amends existing frameworks to cover this area and whether external verification is required. • Framework must be sufficiently flexible to: • Protect projects currently under development • Ensure that framework allows for CDM compliance should CCS be included under the CDM regime • Accommodate technical development and international regulatory developments • Work with industry to maximise leverage from work alrauthorityydone such as the BP/HEI/Rio Tinto draft framework. DRAFT HEI Confidential