In a Flagship Report, the International Energy Agency said reaching net-zero carbon dioxide emissions is “virtually impossible” without carbon capture, utilization, and storage. Significant progress has been made in the U.S. with respect to financial incentives for carbon sequestration, but site acquisition and permitting timelines remain key hurdles to meeting net-zero targets. Policymakers must address these challenges if goals are to be achieved on schedule.

Net-zero greenhouse gas emissions by 2050, if not sooner, is increasingly reflected in federal, state, and corporate climate action policies and mandates. Significant, non-technological hurdles, though, continue to hinder implementation of carbon sequestration in the U.S. despite multi-decade efforts to further carbon capture and sequestration (CCS) in this country. Addressing these hurdles—most importantly, site acquisition and permitting timelines—is critical if CCS is to help realize these net-zero goals.

The Intergovernmental Panel on Climate Change has concluded that achieving net-zero emissions on a global level by 2050 is necessary to limit warming to 2.7F above pre-industrial levels. More than 70 countries around the world have now set net-zero national emissions targets, although the timing and level of commitment among these countries vary. Last month, for example, President Biden signed Executive Order 14057, which calls for the federal government’s operations to be net-zero no later than 2050 with federal vehicles to realize this goal by 2035. On the state level, California’s goal under Gov. Jerry Brown’s Executive Order B-55-18 is carbon neutrality by 2045. Many businesses have established similar goals at the corporate level. For example, in October Chevron set a target of net-zero operational emissions by 2050.

These are ambitious goals, particularly in the context of emissions reductions over the last 20 years. For example, according to the U.S. Environmental Protection Agency’s (EPA’s) inventory, net greenhouse gas emissions in the U.S. in 2000 totaled almost six and a half billion metric tons of carbon dioxide (CO2) equivalent (Figure 1). Emissions are now lower, but those reductions are nowhere close to the pace needed to achieve a 2050 net-zero goal.

1. Historical data from the U.S. Environmental Protection Agency’s Inventory of U.S. Greenhouse Gas Emissions and Sinks is shown on this graph in units of million metric tons of carbon dioxide equivalent (MMTCO2e). Courtesy: Stoel Rives

Emissions in California—long a leader in climate change policy—reflect a not entirely different path from the nation as a whole. This is despite the enactment of Assembly Bill 32 in 2006 setting California on the path to reduce emissions to 1990 levels by 2020. That level of emissions reductions was achieved, but based on data from the California Air Resources Board (CARB), current trends suggest California will miss the state’s 2045 goal by a wide margin (Figure 2).

2. California’s greenhouse gas emissions have decreased over the past decade, but the state will not meet its net-zero goals on schedule if the current trend continues. Courtesy: Stoel Rives

Importance of CCS Recognized, but Projects Slow to Materialize

Geologic carbon sequestration, which involves capturing emissions and injecting the CO2 underground permanently, has the potential to dramatically change that calculus. More than 20 carbon sequestration projects are currently operating across the globe, but the Global CCS Institute believes that sequestration capacity will need to increase from about 40 million metric tons per year to more than 5,600 million metric tons per year by 2050, which could require nearly $1.3 trillion of capital investment.

For nearly two decades the U.S. federal government has been laying the groundwork for carbon sequestration. In 2003, the U.S. Department of Energy began funding seven regional partnerships across the country tasked with characterizing carbon sequestration potential, validating opportunities, and developing pilot projects. In 2010, the EPA promulgated regulations for injection wells specifically for carbon sequestration (also known as Class VI wells). However, 11 years later, Class VI permits have been issued for only three projects: the FutureGen Project, which was ultimately shelved; an existing Illinois ethanol plant, which has sequestered about 7 million metric tons of CO2; and in October 2021, for an existing North Dakota ethanol plant. Although a few Class VI applications are currently pending for projects in California, Louisiana, and North Dakota, this is well short of the 29 projects that EPA anticipated in 2010 based on then-existing climate policies.

Project Development Takes Time

Several hurdles continue to slow the implementation of carbon sequestration in the U.S. First, acquiring the subsurface rights to sequester CO2 underneath hundreds and thousands of acres can be difficult and time-consuming. Without a way to deal with potential property owner holdouts, such as through eminent domain or compulsory unitization or amalgamation, a single property owner can effectively stop a project from moving forward. Some states have taken action to address this issue. North Dakota, for example, enacted legislation in 2009 under which the North Dakota Industrial Commission (NDIC) can amalgamate unwilling landowners if the owners of at least 60% of the subsurface to be utilized for sequestration have consented. Last year, the NDIC approved the first amalgamation for carbon sequestration. Enacting such processes in other jurisdictions is critical for advancing CCS in a timely way.

Projects in the western U.S. will likely encompass property owned by the federal government, which includes nearly half the land in that region. In 2011, the U.S. Bureau of Land Management (BLM) issued guidance for authorizing site characterization work for carbon sequestration projects on federal lands within its jurisdiction. However, that guidance has expired, and the more critical piece—the path for authorization of actual carbon sequestration as opposed to just site characterization work—was never addressed by the BLM. While these uncertainties are not insurmountable, uncertainties discourage private investment and tackling them will take time, which is in short supply with respect to 2050 net-zero goals.

In addition to acquiring the rights for the sequestration site itself, rights-of-way will be needed to transport the CO2 from sources to the sequestration sites. More than 4,000 miles of CO2 pipelines already exist in the U.S., primarily to transport CO2 for purposes of enhanced oil recovery. More pipelines will be needed to realize net-zero emissions goals, but unlike siting natural gas pipelines, there is no federal authority for siting CO2 pipelines. While such siting authority is not without its own issues, when accompanied by the ability to acquire rights-of-way through eminent domain, it can be vital to moving projects forward in a timely way.

Unfortunately, acquiring the necessary property rights for a sequestration project is not the only significant hurdle to broadly using carbon sequestration to help achieve 2050 net-zero goals. Permitting timelines for carbon sequestration projects are also not well-aligned with that 2050 timeline. For example, just two states—North Dakota and Wyoming—have primacy with respect to the Class VI wells (Louisiana has a pending application with the EPA). As a result, the EPA presently is responsible for permitting Class VI wells in every state other than North Dakota and Wyoming.

Federal permitting (including authorizations to use federal land) involves a host of federal environmental statutes, such as the National Environmental Policy Act (NEPA). While the review processes required by those statutes are not without merit, they can take an inordinate amount of time. For example, according to information released by the Council on Environmental Quality last year, the average time to complete the environmental impact statement process under NEPA is four and a half years, with it commonly taking more than six years. Years spent in permitting is not a luxury that a 2050 net-zero goal—to say nothing of more immediate goals—can afford. The recent Infrastructure Investment and Jobs Act included provisions to expedite federal permitting of “major projects.” Streamlining permitting on both federal and state levels for climate change critical projects should be a key priority.

Financial Incentives Available

Although site acquisition and permitting timelines remain key hurdles, significant progress has been made in the last few years with respect to tax and regulatory financial incentives for carbon sequestration. In 2008, Congress enacted Section 45Q of the Internal Revenue Code, which provided a $20 federal income tax credit for every metric ton of CO2 sequestered for purposes not related to enhanced oil recovery. However, in the decade that followed, Section 45Q tax credits were generated only in connection with enhanced oil recovery, even though that tax credit was half as much. In the last few years, Congress has sweetened the Section 45Q pot for geologic carbon sequestration in several ways. The tax credit has been increased to $50 starting in 2026, and smaller projects can take advantage of the tax credit, provided that construction commences by the end of 2025. (A further supplement is possible but uncertain as of early January when this article was written, as both the Build Back Better Act approved by the U.S. House of Representatives and the Senate Finance Committee’s version would further enhance the Section 45Q tax credit and push out the construction commencement deadline to the end of 2031.)

Carbon sequestration became a tool under California’s Low Carbon Fuel Standard (LCFS) when CARB issued its CCS protocol in 2018 to facilitate incorporating carbon sequestration into fuel production under the LCFS. Prices for California LCFS credits, which refineries use to achieve compliance with the LCFS program and reflect one metric ton of reduced emissions, averaged $199 in 2020. There is a longtail cost for carbon sequestration projects to participate in LCFS credit generation, namely a monitoring obligation that stretches for 100 years after injection ceases, but CARB’s CCS protocol has helped stoke CCS development interest that was previously rather dormant.

With carbon sequestration projects being permitted and developed in California, Louisiana, and North Dakota, carbon sequestration is moving forward in the U.S. notwithstanding these site acquisition and permitting timeline hurdles. However, as the broad utilization of carbon sequestration is critical to realizing net-zero emissions by 2050, removing or lowering these hurdles is a climate imperative that policymakers on both federal and state levels need to consider and take action to address.

Eric L. Martin is a partner with Stoel Rives focused on natural resource development with an emphasis on property issues and transactions. Michael N. Mills is a partner with Stoel Rives focused on oil and gas, environmental, land use, regulatory compliance, property tax, and litigation matters.