Carbon capture, use, and storage (“CCUS”) is widely viewed as a critical tool for reducing atmospheric emissions of anthropogenic carbon dioxide (“CO2”). The United States, and Texas in particular, is uniquely situated to become a world leader in CCUS due to the availability of geologic storage capacity and relevant expertise and capabilities that can be drawn from the experience of the oil and gas industry with the injection of CO2 for purposes of enhanced oil and gas recovery (“EOR”). Recent actions by the Texas state legislature and the Texas General Land Office (the “GLO”) signal strong support in Texas for the development of CCUS projects, particularly for the injection and geologic sequestration and storage of CO2, and help clear and define the path for onshore and offshore CCUS deployment in Texas.

House Bill 1284 Paves the Way for State Permitting of CO2 Geologic Sequestration Wells

The United States Environmental Protection Agency (the “EPA”) regulates underground injection of fluids for storage or disposal under its Underground Injection Control (“UIC”) program, 40 CFR pts. 144-147, established pursuant to the Safe Drinking Water Act, 42 U.S.C. § 300f et seq., designed to protect underground sources of drinking water. The UIC program has six classes of UIC wells, which are based on the type of fluid that will be injected. Wells for the purpose of injection and geologic storage and sequestration of CO2 were added to the UIC program in 2010 and are referred to as Class VI wells. A Class VI UIC permit is required prior to the drilling and operation of a Class VI well. The UIC program is implemented by the EPA or by states, territories or tribes that have received approval from the EPA for primary permitting and enforcement authority, referred to as primacy. Primacy is approved by well class. Texas has primacy for Class I-V UIC wells, but does not yet have primacy for Class VI wells. Currently, the EPA has only approved Class VI program primacy for Wyoming and North Dakota. Louisiana is in the process of applying for and is expected to receive primacy in late 2021/early 2022.

On May 21, 2021, the Texas legislature passed, with overwhelming support, House Bill 1284 (“H.B. 1284”), which paves the way for the Railroad Commission of Texas (the “RRC”) to obtain primacy from the EPA to administer the Class VI UIC program governing the permitting, operation, closure and post-closure site care for carbon sequestration facilities. H.B. 1284 passed with a vote of 142-2 in the Texas House of Representatives, and a unanimous 31-0 vote in favor of the bill in the Texas Senate. The overwhelming support for H.B. 1284 is further indication of Texas’ growing interest in encouraging CCUS.

H.B. 1284 provides needed clarity to the Texas framework for injection of CO2 for geologic storage and sequestration. Pursuant to Texas legislation passed in 2009, jurisdiction over the injection and geologic storage of anthropogenic CO2 has been split between the RRC and the Texas Commission on Environmental Quality (the “TCEQ”), based on whether the injection activity would be conducted in a reservoir that is initially or may be productive of oil, gas, or geothermal resources or a saline formation directly above or below that reservoir. The 2009 legislation also established the requirement to obtain a state permit for the injection of CO2 for geologic storage. This split in jurisdictional authority has posed a logistical obstacle to and administrative burden on an application by Texas to receive primacy for Class VI wells from the EPA and has created an uncertain jurisdictional framework for the regulated community. To fix these problems, H.B. 1284 repeals the TCEQ’s jurisdiction over Class VI injection wells and consolidates jurisdiction under the RRC for all onshore and offshore injection and geologic storage of anthropogenic CO2 in Texas.

The RRC adopted rules in 2010 based on the EPA regulations for Class VI wells. 16 Tex. Admin. Code §§ 5.201 et seq. These rules require a number of applicant demonstrations and corresponding RRC findings to support permit issuance relating to the suitability of the proposed storage formation, including that:

• The injection and storage activity will not endanger or injure any existing or prospective oil, gas, geothermal, or other mineral resource, or cause waste as defined by Texas Natural Resources Code,§85.046(11) (referring to the waste of hydrocarbon resources, not to discarded material);
• Both underground sources of drinking water and surface water can be adequately protected; and
• The injection activity will not endanger or injure human health and safety.

16 Tex. Admin. Code § 5.206(a). Notably, the RRC’s rules also contemplate the conversion of injection wells used for EOR, which are Class II wells under the UIC program, to Class VI wells if they will be used for the primary purpose of geologic sequestration rather than EOR. See 16 Tex. Admin Code § 5.201.

The changes implemented by H.B. 1284 will facilitate the application by the RRC for primacy to administer the Class VI UIC permitting program in Texas. The EPA’s approval of Class VI program primacy will eliminate the need for both a federal and state permit. However, revisions will be needed to the RRC’s rules in connection with the application for primacy and the process for obtaining primacy will take time. The timetable for the RRC’s application for and receipt of primacy is uncertain, but it is anticipated that the process may take one to two years. In the meantime, proponents for CCUS projects in Texas should coordinate with both the EPA and the RRC on the application process, as these agencies are expected to work together to provide for a smooth transition of applications in process at the time the RRC receives primacy.

In addition to consolidating jurisdiction with the RRC, H.B. 1284 made two other changes to the regulatory framework for CO2 injection for geologic storage. First, H.B. 1284 requires applicants to submit with their application for an injection well a letter of determination from the TCEQ concluding that drilling and operating the well will not impact or interfere with any previous or existing Class I injection well, including any associated waste plume, or any other injection well authorized or permitted by the TCEQ. Second, the bill prohibits the RRC from issuing permits for the conversion of a previously plugged and abandoned Class I injection well to a Class VI injection well.

H.B. 1284 will become effective when it is signed into law by the Governor, or on June 20, 2021 if neither signed nor vetoed by the Governor.

GLO Preparing for Potential Offshore CCUS Facility

H.B. 1284 is not the only recent signal that CCUS is picking up traction in Texas. On April 7, 2021, the GLO, on behalf of the School Land Board, issued a Request for Proposals (“RFP”) for the lease of Permanent School Fund Land in Jefferson County, Texas for the establishment and operation of an offshore CO2 geologic storage facility under submerged state-owned land. The RFP solicited proposals for leases for a period of up to 30 years, including a maximum 3-year diligence period, for the construction and operation of a CO2 storage repository and associated infrastructure. The deadline for submission of responses to the RFP was May 10, 2021. The GLO’s issuance of the RFP emphasizes the interest in utilizing state-owned land for carbon capture projects, and the potential project would be the first offshore geologic sequestration project in Texas, and likely in the United States.

The Path Ahead

By consolidating jurisdiction over injection wells for geologic sequestration of CO2 with the RRC, the Texas legislature has begun clearing the way for the RRC to seek primacy and ultimately streamline the permitting process for Class VI wells in Texas. While H.B. 1284 represents a significant milestone on the path to achieving deployment of CCUS in Texas, some obstacles still remain. In particular, uncertainty still exists regarding underground pore space ownership and the scope of liability for CCUS activities. In addition, there remains a need to provide a mechanism to secure property rights when 100% of the rights needed cannot otherwise be secured, such as eminent domain or comparable mechanisms provided for by statutes in other states.

While these recent actions help clear and better define the path for commercial deployment of CCUS, the path will need to be carefully and strategically navigated and additional clarification of the legal framework will likely be needed as the journey continues.

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