Environment @ Gowlings: May 25, 2012 - Volume 9, Number 4

Edited by Harry Dahme

In this issue:

Carbon Capture and Storage - An Alberta Perspective Castonguay Blasting - A Case Comment Supreme Court Will Not Hear Appeal of Smith v. Inco KPIA, RIP Introducing the Metal Dealers and Recyclers Act (B.C.) CARBON CAPTURE AND STORAGE - AN ALBERTA PERSPECTIVE

By: Nadia Conforti, Student-at-Law, Arnold Olyan and Garth Parker

Carbon capture and storage (CCS) is a process that first captures and then sequesters industrial carbon dioxide (CO2) emissions before release into the atmosphere. The CCS process involves the following stages:

CO2 capture and compression; CO2 transport from the capture site to an injection/storage site; injection and permanent storage of CO2 in geological formations; and upon injection completion, post-closure long-term monitoring of the CO2 storage site. A CCS system combining these features will reduce industrial CO2 emissions into the atmosphere.

The Alberta Government considers CCS a critical technology to reduce industrial greenhouse gas (GHG) emissions and has proposed CCS as the largest portion of its GHG reduction strategy. Alberta has taken significant steps in advancing its CCS initiative by establishing a legal and regulatory framework to implement large scale CCS projects. Although the CCS initiative provides a potential solution for sustainable hydro-carbon production in Alberta, large scale CCS raises numerous issues.

Background

In January 2008, the Government of Alberta released its Climate Change Strategy. The report reiterated the Province's target to reduce annual GHG emissions from a 2010 baseline by 50 megatonnes (Mt) by 2020 and added a target of reducing annual GHG emissions by 200 Mt by 2050 (inclusive of the 50 Mt target).

The Climate Change Strategy anticipated that CCS implementation would account for up to 70% of Alberta's targeted GHG emissions reductions. The Strategy also included the establishment of the Alberta Carbon Capture and Storage Development Council to facilitate the implementation of CCS in Alberta by recommending those economic, regulatory, and technical requirements consistent with CCS implementation.

Formalized Regulatory Framework

1. Carbon Capture and Storage Funding Act, S.A. 2009, c. C-25 (the "Funding Act")

   The purpose of the Funding Act is to encourage and expedite the design, construction and operation of CCS projects in Alberta. The Funding Act provides the Minister of Energy (the "Minister") with the legal authority to make grants facilitating the Funding Act's purpose. To date, the Minister has allocated $2 billion in provincial funding to four CCS projects:

   The Alberta Carbon Trunk Line Project by Enhance Energy for construction and operation of a 240 km pipeline that will collect and transport CO2 from industrial emitters (initially a fertilizer manufacturing facility and an oilsands bitumen refinery in Redwater, Alberta) to existing oil reservoirs. The injection of CO2 below the oil reservoir is intended to both enhance oil recovery and provide significant storage. The Shell Quest Project to capture more than one million tonnes of CO2 annually from Shell's Scotford oilsands upgrader located near Fort Saskatchewan, Alberta and transport same by pipeline to injection wells located in Central Alberta. The Swan Hills Synfuels Project for piloting of in-situ coal gasification to convert a deposit of deep unmineable coal into synthetic gas (syngas) underground that will be processed at a conventional gas plant to remove CO2 as a byproduct of the gasification. The CO2 from this process will be captured and used for enhanced oil recovery and the produced syngas will be used as a fuel in a combined cycle power generation station to produce low emission electricity. TransAlta Corporation's Project Pioneer for construction of a carbon capture facility at the Keephills 3 coal-fired power plant located west of Edmonton, Alberta anticipated to capture and store one million tonnes of CO2 annually. It must be noted that on April 26, 2012 Project Pioneer's industry partners, TransAlta Corp, Enbridge Inc. and Capital Power Corp., announced they will not be proceeding with CCS project due to economical concerns. See discussion below under "Cost Considerations". 2. Carbon Capture and Storage Funding Regulation, Alta Reg 64/2010 (the "Funding Regulation")

   The Funding Regulation authorizes Ministerial spending for CCS education and research, and for development and refinement of the provincial regulatory regime for CCS. In March 2011, the Alberta Government launched a Regulatory Framework Assessment (RFA), funded pursuant to this regulation. The objectives of the RFA are to: (i) review the current regulatory requirements in Alberta that apply to CCS; (ii) examine CCS frameworks in other jurisdictions; and (iii) identify opportunities to improve Alberta's regulatory framework. The review is expected to be completed in late 2012. As yet, there has been no public announcement arising as an outcome of the RFA.

3. Carbon Capture and Storage Statutes Amendment Act, 2010 c. 14 (the "CCS Amendment Act")

   The CCS Amendment Act attempts to provide legal certainty regarding several aspects of the CCS process including:

   Ownership of Pore Space and Grant of Sequestration Rights: To accommodate CCS, ownership of all pore space for the purpose of storing CO2 has been vested in the Crown in Right of Alberta (the Crown) under the Mines and Minerals Act1 (the MMA). Further, authority has been vested in the Minister of Energy to contract with counterparties for: (1) an evaluation permit2 granting the right to drill evaluation wells to determine the suitability of geological formations for CCS3, and (2) a carbon sequestration lease4 granting rights to inject captured carbon dioxide for sequestration5. The CCS Amending Act is retroactive and supersedes existing mineral or storage rights. Long-term Stewardship and Liability: The lessee under a carbon sequestration lease must obtain a well licence and an approval from the Energy Resources Conservation Board under the Oil and Gas Conservation Act prior to drilling or using a CCS well.6 During injection operations, a lessee is required to monitor all wells and facilities and, upon ceasing injection operations, comply with all closure requirements of the approved closure plan.7 The lessee may then apply to the Minister for a closure certificate, which the Minister may issue if satisfied that: (i) the lessee has met all monitoring, closure, abandonment, decommissioning and reclamation obligations; (ii) the lessee has complied with all relevant environmental requirements, and (iii) the captured CO2 is behaving in a stable and predictable manner, with no significant risk of future leakage.8 Upon issue of a closure certificate by the Minister, the Crown permanently assumes all obligations of the lessee for the sequestered CO2 and conditionally indemnifies the lessee against liability in tort.9 Post-Closure Stewardship Fund: Lessees are required to pay a fee per tonne of "captured carbon dioxide injected"10 into a post-closure stewardship fund (the "Fund") for the duration of the CO2 injection period.11 Monies paid into the Fund will be available to the Crown to be used for monitoring the injected CO2 plume, fulfilling the obligations the Crown has assumed from the lessee, and paying for the costs of reclamation and remediation activities.12 4. Carbon Sequestration Tenure Regulation, A.R. 68/2011 (the "CST Regulation")

   The CST Regulation establishes requisite procedures for Ministerial agreement to make pore space available, to evaluate suitability for sequestration and to subsequently undertake sequestration of CO2.

   The CST Regulation: (i) defines "pore space" and "deep subsurface reservoirs"13; (ii) establishes the application process and terms for permits and leases14; (iii) limits the size of parcels of land for permits and leases15; (iv) sets the annual rental fee for subsurface reservoirs16; (v) provides detailed provisions for monitoring...