Importance of State Regulatory Involvement in Carbon Sequestration

1. Importance of State Regulatory Involvement in Carbon Sequestration Governor’s Ethanol CoalitionFebruary 28, 2007

2. The IOGCC • The IOGCC: • An interstate compact representing the Governors of 30 member and 7 associate member states • Has promoted the conservation and efficient recovery of our nation’s petroleum resources for more than 70 years

4. The IOGCC Mission To promote the conservation and efficient recovery of domestic oil and natural gas resources while protecting health, safety and the environment

5. Introduction • We are here today at the urging of Governor Hoeven of North Dakota, our Chairman. • Two key points I hope you take away from this presentation today: • It is very important that states maintain regulatory control of carbon dioxide (CO2). • CO2 is not a waste – it is a demonstrated commodity. This distinction is an important one since ethanol plants produce CO2 as a necessary bi-product of ethanol production. It is unnecessary and unhelpful to treat this valuable bi-product as a waste.

6. Summary of Presentation • Background on carbon sequestration as means of mitigating impact of CO2 emissions on global climate. • Work of IOGCC & states in developing a legal and regulatory framework for carbon sequestration. • Importance of this work to the ethanol industry and the Governors Ethanol Coalition.

7. Carbon Sequestration as a means of mitigating Climate Change • A recent report by the Intergovernmental Panel on Climate Change (IPCC) stated the following: • That “[w]arming of the climate system is unequivocal” based on “observations of increases in global average air and ocean temperatures, widespread melting of snow and ice, and rising global average sea level”. • Average global surface temperature has increased over the last 100 years (1906-2005) by 0.74 degrees C. • Intergovernmental Panel on Climate Change, Contribution of Working Group I to the Fourth Assessment Report: Climate Change 2007: The Physical Science Basis, Summary for Policy Makers, February 5, 2007.

8. Carbon Sequestration as a means of mitigating Climate Change • A recent report by the Intergovernmental Panel on Climate Change (IPCC) stated the following: • “Eleven of the last twelve years (1995-2006) rank among the warmest years in the instrumental record of global surface temperature.” • A major concern relates to increasing concentrations of greenhouse gases, such as CO2 and methane, that may have a positive radiative forcing, thus tending to warm the Earth’s surface. Intergovernmental Panel on Climate Change, Contribution of Working Group I to the Fourth Assessment Report: Climate Change 2007: The Physical Science Basis, Summary for Policy Makers, February 5, 2007.

9. Carbon Sequestration as a means of mitigating Climate Change • A recent report by the Intergovernmental Panel on Climate Change (IPCC) stated the following: • The rate of increase in combined radiative forcing due to increases in CO2, methane, and nitrous oxide is “very likely to have been unprecedented in more than 10,000 years.” • Since the pre-industrial period, atmospheric concentrations of CO2 have increased 35 percent, from 280 parts per million (ppm) to 379 ppm concentration in 2005. Intergovernmental Panel on Climate Change, Contribution of Working Group I to the Fourth Assessment Report: Climate Change 2007: The Physical Science Basis, Summary for Policy Makers, February 5, 2007.

10. Carbon Sequestration as a means of mitigating Climate Change • This increase in CO2 requires the development and implementation of mitigation strategies aimed at reduction of CO2 concentrations. • Reducing concentrations of anthropogenic greenhouse gases can be accomplished in four basic ways: • through energy conservation and energy efficiency; • by using technologies involving renewable energy, nuclear power, hydrogen, or fossil fuels containing lower percentages of carbon, i.e., natural gas; • by indirect capture of CO2 after its release into the atmosphere utilizing the oceans or terrestrial sequestration, i.e., reforestation, agricultural practices, etc.; or • by carbon capture and geological storage (CCGS), whereby CO2 is captured before release into the atmosphere and sequestered or stored in geologic formations through underground injection.

11. Carbon Sequestration as a means of mitigating Climate Change Carbon Capture and Geological Storage (CCGS), whereby CO2 is captured before release into the atmosphere and sequestered or stored in geologic formations through underground injection. • It is the last item which has been the focus of the work of a Task Force created by the IOGCC. • The goal of the IOGCC through its CCGS Task Force is to supply states the information which they will need in order to be able to put in place, if states so choose, a framework to regulate the geological storage component of CCGS when the need arises – most likely as the result of a mandatory cap on CO2 emissions or a carbon tax.

12. Carbon Sequestration as a means of mitigating Climate Change • The ultimate objective: • A consistent state-regulated system for the geologic storage of CO2 in conformance with national and international law and protocol.

13. Current work of IOGCC to develop a regulatory framework for CCGS • IOGCC Geological CO2 Sequestration Task Force created by IOGCC Resolution in December 2002. • Task Force extended - with name change to the IOGCC CCGS Regulatory Task Force – in 2004 and again in 2006 . • Funded by USDOE/NETL and working closely with the seven regional carbon sequestration partnerships. • Task Force comprised of representatives from IOGCC member states, state oil and gas agencies, the USDOE, the Association of State Geologists and all of the regional partnerships. EPA is also attending.

14. Brief Summary of Phase I Work and Recommendations • Experience gained by industry and states in the production, transport and injection of CO2 for enhanced oil recovery over last 30 years will enable development of technically sound regulatory frameworks. • States have necessary regulatory analogues in place to facilitate development of a comprehensive regulatory framework for the geologic storage of CO2. • CO2 should be regulated as a commodity to allow the application of oil and gas conservation laws which will facilitate development of storage fields, the protection of the storage reservoirs to maximize storage capacity, and the protection of correlative rights of the interested owners. • At earliest possible time involve all stakeholders including general public in the development of regulatory frameworks.

15. PARTICIPANTS: Lawrence Bengal, Task Force Chairman, AR Stefan Bachu, Alberta Michael Williams, Texas John Baza, UT Tim Carr, KS Kipp Coddington, DC Mary Jane Coombs, West Coast Ptshp. David Cooney, TX David Curtiss, SW Ptshp. James Drahovzal, Midwest Ptshp. Patrick Esposito, SE Ptshp. Mark Fesmire, NM Bill O’Dowd, DOE Robert Finely, Illinois Basin Ptshp. John Harju, Plains Ptshp. Lynn Helms, ND Stephen Melzer, TX Charles Mankin, OK Anthony Moore, EPA Eric Nelson, WY Douglas Patchen, WV Joseph Perkowski, Big Sky Ptshp. Marvin Rogers, AL Carl Michael Smith, OK Michael Stettner, CA Cammy Taylor, AK Nick Tew, AL Current work of IOGCC to develop a regulatory framework for CCGS

16. Current work of IOGCC to develop a regulatory framework for CCGS Phase II Task Force Objectives: • Creation of a nationwide guidance document, approved by the IOGCC, which is specific enough to enable each state to develop its own statutes and regulations while at the same time helping to lay the essential groundwork for a state-regulated, but nationally consistent, system for the capture and geologic storage of CO2 in conformance with national and international law and protocol; and 2. Provision of assistance to Regional Partnership Pilot Projects in (a) understanding and complying with regulatory requirements for field testing and injection; (b) implementing draft model regulations and assessing adequacy of those regulations.

17. Current work of IOGCC to develop a regulatory framework for CCGS • Conclusion – States have the experience to regulate CO2 geologic storage: • Given the jurisdiction, experience, and expertise of states in the regulation of oil and natural gas production and natural gas storage in the United States, states are the ideal regulator of CO2 geological storage. For half a century states have been the principal regulators of EOR in the United States, as well as for natural gas and hydrogen sulfide (H2S) storage. Regulations already exist in petroleum producing states covering many of the same issues that need to be addressed in the regulation of CO2 geological storage. • In addition, many states that do not have petroleum production store natural gas and, therefore, have in place natural gas storage regulations. Thus these states, too, have regulations that at least in part cover many of the same issues that need to be addressed in the regulation of CO2 storage.

18. Importance of this work to the ethanol industry and this coalition • CO2 is a bi-product of ethanol production. • A 40 million gallon/year ethanol plant will produce up to 8 million cubic feet/day of CO2. • The CO2 produced today is handled by the market as a commodity – purchased and used, mostly by the food industry.

19. Importance of this work to the ethanol industry and this coalition • While demand and supply for the CO2 produced by ethanol plants appear to be in balance today, with the anticipated expansion of ethanol production over the coming years, it is likely that the CO2 produced from these plants will have to be used for other purposes, such as for enhanced oil and natural gas recovery.

20. Importance of this work to the ethanol industry and this coalition • Some are arguing that CO2 needs to be classified as a waste and it’s “disposal” regulated nationally. • WE DISAGREE. • CO2 is not considered a pollutant and is notconsidered hazardous. It has a very long and safe history of being transported, handled, and used in a variety of applications.

21. Importance of this work to the ethanol industry and this coalition • CO2 has demonstrated its value as a commodity for EOR. The CO2 produced by ethanol plants has also clearly demonstrated its value as a commodity. • Nothing is to be gained and there is much to lose by categorizing CO2 as a “waste” thereby putting CO2 into a “disposal” framework rather than a “commodity” framework.

22. Importance of this work to the ethanol industry and this coalition • A disposal framework could jeopardize construction of future ethanol plants and make more difficult the development of projects (EOR, etc.) which can make beneficial use of produced CO2, while still keeping CO2 out of the atmosphere. • Efforts to regulate CO2 storage nationally are also unhelpful and dangerous. States have the experience and knowledge to safely store this commodity.

23. Summary • It is very important that states maintain regulatory control of CO2. • State regulation of CO2 use and storage is not an unprecedented new endeavor – it is a logical extension of existing state regulatory experience and authority. • CO2 is not a waste – it is a demonstrated commodity. • The public must be educated on the facts and included in an open regulatory development process.

24. Contact information: www.iogcc.state.ok.us Kevin Bliss 202-484-1026 iogccdc@verizon.net