National policies to reduce greenhouse gas emissions and expedite the permitting of oil and gas transportation infrastructure have been recommended by the National Petroleum Council (NPC).
The recommendations are a balancing act—advocating that the federal government deal with concerns over climate change while also coming to terms with the expectation that hydrocarbon fuels will be needed for decades to come.
At the same time, the NPC recommended a national strategy on carbon capture, use and storage (CCUS). It was another side of the climate change subject—a mechanism for limiting greenhouse gas emissions in a world that is expected to need hydrocarbon fuels for decades to come.
The NPC recommendations were first released in December as two big reports responding to requests by the US energy secretary for information and advice on infrastructure and CCUS. Some polish—not changes in conclusions or recommendations—has been added to those “draft” reports since then to prepare them for publication in final form. The official recipient is US Energy Secretary Dan Brouillette, but it is intended for a wider audience, notably including Congress.
Brouillette’s predecessor Rick Perry, who asked for the reports, did not request a study on climate issues, but those issues turned out to be hard to avoid, given the court fights over infrastructure, explained Amy Shank, director of pipeline safety and asset integrity at Williams Cos. Inc.
Policy instead of lawsuits
“Groups are litigating individual projects in the courts to try and fight the climate change battle project by project, where we think that the better solution is a national carbon policy,” she told Oil & Gas Journal Feb. 18. She was a participant in the NPC infrastructure study.
“We had to really walk a fine line, because we didn’t do a climate change study, and we didn’t dig real deep into the myriad of other climate change studies out there,” she said.
“We decided that an appropriate recommendation to Congress is: Have that debate,” said Mark Gebbia, vice president of environmental, regulatory and permitting at Williams.
The NPC said Congress should “enact a comprehensive national policy to reduce greenhouse gas emissions and seek to harmonize federal, state, and sectoral policies to enhance efficiency and effectiveness. Congress should ensure that the enacted national policy is economy wide, applicable to all sources of emissions, market-based, transparent, predictable, technology agnostic, and internationally competitive.”
At the same time, the NPC sought to promote a robust infrastructure with clearer project permitting, especially through better National Environmental Policy Act (NEPA) regulations. The Trump administration has started working on NEPA regulatory changes, but there is only so much that can be done administratively.
The council recommended that Congress “clarify that greenhouse gas assessments under NEPA, for oil and natural gas infrastructure projects, are confined to emissions that are (1) proximately caused by the federal action ... and (2) are reasonably foreseeable.”
Gebbia explained the rationale for addressing climate change and NEPA together, saying, “The question from the secretary that we were trying to answer is how do permitting processes consider climate concerns. The simplest answer to that is, they’re not really designed to.”
An added motivation for Congress to act could be the broad reach of NEPA reform—affecting power transmission lines, pipelines for carbon dioxide, pipelines for hydrogen and other infrastructure, not just oil and gas, Gebbia said.
Carbon capture, use, storage
The NPC report on carbon capture, use and storage recommended a target of capturing 500 million metric tons/year of CO2 as the long-term (at scale) target. To put that in perspective, CO2 emissions from large stationary sources in the US are about 2.6 billion tons/year, and total US CO2 emissions exceed 5 billion tons/year.
Nigel Jenvey, head of carbon management practice at Gaffney, Cline & Associates, consulting arm of Baker Hughes Co., explained to OGJ how the NPC report arrived at its stated goal.
The target of 500 million tons per year was arrived at through a “bottom up” analysis reviewing the locations and types of emission sources, storage capacity, existing and potential pipeline infrastructure, costs and other details, Jenvey said. The study also took into account a “top down” estimate saying 8-10% of CO2 emissions should be captured annually by the year 2050 to contribute to climate goals—and 10% of US emissions would be roughly 500 million tons/year.
There is no question that a surplus of US capacity is available for carbon sequestration, Jenvey said. There have been enough studies in various regions of such storage options as saline aquifers in sedimentary rock into which CO2 can be pumped, he said.
But financial incentives are a question. There are many federal and state incentives, but the main one is a tax credit through Section 45Q of the Internal Revenue Code.
Current financial incentives for CCUS amount to about $40/metric ton of carbon dioxide, but that needs to rise to about $110 to incentivize longer-term higher-volume CCUS, according to the NPC report.
Tax incentives will be an important part of the incentives, though not the only part, Jenvey said. He noted that costs and financial risks can be managed through various mechanisms, such as loan guarantees, private activity bonds, and master limited partnerships.
The Internal Revenue Service has a role to play through rules following up on recent tax law changes. The IRS issued guidance Feb. 19 to clarify the timing of work that qualifies for a CCUS tax credit and to create a legal “safe harbor”—reducing legal liability—for the allocation of tax credits among partnerships. The IRS said it anticipates issuing further guidance on CCUS in the near future.
