Design considerations for financing a national trust to advance the deployment of geologic CO2 storage and motivate best practices |
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| Authors: | James J Dooley Chiara Trabucchi Lindene Patton |
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| Institution: | 1. Joint Global Change Research Institute, Pacific Northwest National Laboratory, 5825 University Research Court, College Park, MD 20740, United States;2. Industrial Economics, Incorporated, 2067 Massachusetts Avenue, Cambridge, MA 02140, United States;3. Zurich Financial Services, Mythenquai 2, Zurich, Zurich 8022, Switzerland;1. Delft University of Technology, Faculty of EEMCS, Mekelweg 4, 2628 CD Delft, The Netherlands;2. TenneT TSO B.V., Asset Management, Grid Development and Strategy Department, Utrechtseweg 310, Arnhem, The Netherlands;1. Center for Science, Technology, and Public Policy, University of Minnesota, Humphrey School of Public Affairs, 301 19th Avenue South, Minneapolis, MN 55455;2. Department of Civil and Environmental Engineering, Princeton University, Princeton, NJ 08544;1. The University of Texas at Austin, University Station, Box X, Austin, TX 78713;2. Western New England University, 1215 Wilbraham Road, Springfield, MA 01119;3. Louisiana State University, 2127 Patrick F. Taylor Hall, Baton Rouge, LA 70803;1. RAND Corporation, 4750 Fifth Avenue, Suite 600, Pittsburgh, PA 15213, USA;2. RAND Corporation, 1776 Main Street, Santa Monica, CA 90401, USA;3. RAND Corporation, 20 Park Plaza, Boston, MA 02116, USA;1. Computational Earth Science (EES-16), Los Alamos National Laboratory, Los Alamos, NM 87545, USA;2. National Energy Technology Laboratory, Morgantown, WV 26507, USA;3. Earth & Environmental Sciences Division, Los Alamos National Laboratory, Los Alamos, NM 87545, USA;4. Earth Sciences Division, Lawrence Berkeley National Laboratory, Berkeley, CA 94720, USA;5. Department of Earth Science and Engineering, Imperial College London, Exhibition Road, London SW7 2AZ, UK;6. Statoil ASA/NTNU, Trondheim N-7005, Norway;7. Shell Projects & Technology—Upstream Development, 1 Altens Farm Road, Aberdeen, AB123FY, UK;8. CO2CRC Ltd, PO Box 1182, Carlton, Victoria 3053, Australia;9. Atmospheric, Earth and Energy Division, Lawrence Livermore National Laboratory, Livermore, CA 94551, USA |
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| Abstract: | This paper explores how the widely held public policy view of the evolution of the risk profile associated with geologic carbon dioxide (CO2) storage profoundly influences the public policy dialogue about how to best address the long-term risk profile for geologic storage. Evidence emerging from research and pilot scale field demonstrations of CO2 storage demonstrates that, with proper site characterization and sound operating practices, retention of stored CO2 will increase with time thus invalidating the premise of an ever growing risk. The authors focus on key issues of fit, interplay, and scalability associated with the ability of a trust fund funded by a hypothetical $1 per tonCO2 tipping fee for each ton of CO2 stored in the United States under WRE450 and WRE550 climate policies to manage such risks in an economically efficient and environmentally effective manner. The authors conclude there is no intrinsic value – in terms of risk management or risk reduction – in creating a trust fund predicated solely on collecting a universally applied tipping fee that does not take into account site-specific risk profiles. If left to grow unchecked, a trust fund that is predicated on a constant stream of payments unrelated to each contributing site's risk profile could result in the accumulation of hundreds of billions to more than a trillion dollars contributing to significant opportunity cost of capital. Further, rather than mitigating the financial consequences of long-term CCS risks, this analysis suggests a blanket $1 per tonCO2 tipping fee, if combined with a concomitant limitation of liability may increase the probability and frequency of long-term risk by eliminating financial incentives for sound operating behavior and site selection criteria—contribute to moral hazard. At a minimum, effective use of a trust fund requires: (1) strong oversight regarding site selection and fund management, and (2) a clear process by which the fund is periodically valued and funds collected are mapped to the risk profile of the pool of covered CCS sites. Without appropriate checks and balances, there is no a priori reason to believe that the amount of funds held in trust will map to the actual amount of funds needed to address long-term care expenses and delimited compensatory damages. For this reason, the authors conclude that financing a trust fund or other risk management instrument should be based on a site delimited estimate of potential future expected financial consequences rather than on the random adoption of a fixed funding stream, e.g., a blanket $1 per ton, because it “sounds” reasonable. |
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