As outlined in our previous article of 8 October 2009, "New consultation: offshore carbon dioxide storage licensing" by Richard Cockburn and Gayle Harriman, this article looks at DECC's consultation on the proposed offshore carbon dioxide storage licensing regime for the UK in more detail.
Having now reviewed the consultation in more detail, we have drafted our formal response to the various questions posed by DECC in this regard. Prior to submission however, we would welcome any comments you may have on both the consultation and associated documentation which can be accesed at DECC website. Obviously, given our role as legal advisers, we do not in our response nor in this article propose to respond authoratively on any of the more technical issues or questions posed in the consultation.
Our overall comment on the consultation would be that DECC appears to have been placed under considerable pressure to release this as quickly as possible which we believe is reflected in the terms of the proposed draft SI ("The Storage of Carbon Dioxide (Licensing) Regulations 2010") and draft CO2 Licence under the Energy Act 2008 (Annexes B and C to the consultation).
Essentially, although the consultation outlines most of the key issues, these are not wholly reflected in the enabling legislation and licence terms and conditions. Some key examples of these omissions include:
- The issue of long term liability, which we believe still requires further clarification. The consultation documentation simply states that the operator will be liable: "Until DECC is satisfied on the basis of the monitoring reports and inspection that the carbon dioxide within the storage site has stabilised as predicted and that permanent containment has been achieved". Firstly, this has not been transposed into the draft regulations, and secondly, as an objective test this provides little comfort to operators who will be, as DECC is acutely aware, unwilling to accept liability in perpetuity;
- Given that one of the key issues with CCS is the safe and reliable closure of the storage sites, the brevity of the proposed storage provisions in the draft regulations is noticeably lacking in robustness and we believe will need to be significantly beefed up;
- Although the consultation does mention Health and Safety legislation, it fails to do so in any detail or even list the key legislative provisions likely to apply to CCS (for example, the Offshore Installations (Safety Case) Regulations 2005 and Pipelines Safety Regulations 1996 (Part III Major Accident Hazard Pipelines)); and
- There is no doubt that a clear system of penalties and fines will need to be put in place as a deterrent for leakages and breaches of the rules and we are not sure that this has been adequately dealt with in the implementing regulations and licence terms (albeit there are provisions outlined in the Energy Act 2008 covering certain offences).
Also, we believe that there are various issues which have not been covered by the consultation. Again, we have focused on the "big ticket" issues which include:
- The potential competition and procurement issues surrounding the proposal of granting priority rights to an incumbent petroleum licensee; and
- The potential for conflict situations to arise between both the Secretary of State and the individual devolved administrations (in terms of devolved matters in territorial waters) and the Secretary of State and the Crown Estate given that a lease for a storage site will not be granted until the terms of a licence are agreed.
Perhaps it is simply the case that the UK Governement has made a conscious decision not to deviate too far from the provisions already set out in the EU Directive 2009/31/EC at this stage. What is clear however is that, as difficult as some of the questions and issues surrounding CCS are, these decisions still need to be made. There is absolutely no doubt that the responses the UK Government receive from this consultation will be invaluable in the identification of the more specific issues involved in the storage process and in turn shaping the draft legislation. However, there are issues which industry simply cannot answer.
What the UK Government, and indeed the other individual government bodies of the other EU member states, also need to do be doing is engaging in more detailed discussions with the European Commission in order to establish a European wide stance on some of the major outstanding key issues such as long-term liability and levels of fines and penalties for breaches.
Given the issues which still need to be addressed, including those outlined above, we believe that it will be a challenge for the proposed draft legislation to receive Royal Assent on or before the proposed 6th April 2010.