CCUS PART II: Carbon Capture, Utilization, and Storage in Alberta

This article is the second in a two-part series addressing legal issues surrounding Carbon Capture, Utilization, and Storage (“CCUS”)/Carbon Capture and Storage (“CCS”) in Alberta.

In the first article, we noted that climate change has been referred to by the Supreme Court of Canada as an “existential challenge” to Canada and to the world.[1] Canada and its provinces are exploring a number of scientific and technological innovations to combat climate change, and in particular, to reduce the impact of carbon emissions from Canadian energy and industrial processes. CCUS/CCS is one such innovation that is beginning to show promise.

Indeed, these processes are actively being pursued by Alberta industry in 2024. Media coverage indicates that some of the leading projects in Alberta are Shell Canada’s Quest CCS facility, one of the first commercial-scale CCS projects, which reported 7.7 million tonnes of carbon dioxide (“CO2”) captured (as at the end of 2022),[2] and Heidelberg Materials’ Edmonton cement plant’s CCS project, which will commission the world’s first net-zero cement plant by capturing and storing an estimated 1 million tons of CO2 each year.[3]

Having addressed CCUS/CCS processes and regulatory framework in Alberta in our first article, below we provide a summary of the potential liability and litigation risk associated with CCUS/CCS.

Introduction

CCUS/CCS are two regulated processes in Alberta aimed at reducing emissions and mitigating the effects of climate change.[4] CCS refers to CO2 sequestration - the permanent storage of CO2 in an approved subsurface formation - whereas the ‘U’ in CCUS refers to Utilization. Utilization of CO2 is showing promise for various technologies and can include the utilization of CO2 in the production of a product or fuel. In Alberta CCUS can also refer to CO2 used for enhanced oil recovery and storage.[5]

Both processes are technologies that capture CO2 from industry and energy-related emissions, and transport that captured CO2 by pipeline. CCUS encompasses utilization and storage, where CO2 is used both as an input to create further products, and storage (such as CCS), which encompasses the injection of CO2 into underground reservoirs or formations for permanent storage.[6]

According to the Government of Alberta, the province has a competitive advantage to attract CCUS/CCS innovation and investment based on existing large-scale energy development experience, extensive energy infrastructure, subsurface geologic storage capacity,[7] and an established market for CO2 as a result of existing emission regulations. Investment in the sector has also been fueled by the Alberta Carbon Capture Incentive Program, which provides a grant of 12% for new eligible capital costs in CCUS projects, and the Alberta Innovates and Emissions Reduction Alberta programs, which have invested over $200 million in more than 100 CCUS projects.[8] In addition, the Carbon Capture and Storage Funding Act[9] was implemented to “encourage and expedite the design, construction and operation of carbon capture and storage projects in Alberta,”[10] and provides authority for the Minister of Energy and Minerals to make payments to “develop or refine a regulatory system for carbon capture and storage projects in Alberta”.[11]

CCUS/CCS is also seeing growth in sectors other than energy and industrial processes. On September 10, 2024, the Government of Alberta announced a $2.8 Million contribution through Emissions Reduction Alberta towards a $6.1 Million front-end engineering and design study for a first-in-Canada carbon capture project that is anticipated to turn municipal waste into clean electricity. The ultimate goal of this project is to divert more than 200,000 tonnes of municipal solid waste away from landfills annually.[12]

While economic systems are in place to fuel the adoption of CCUS/CCS technologies, several projects await final investment decisions.[13] In addition, the transportation of CO2 and the storage of it underground creates a myriad of potential liability issues, including pipeline leaks or spills, reservoir leakage or blowouts, groundwater and drinking water contamination, and the stimulation of seismic activity. These liability concerns have yet to be explored in-depth.

Liability Framework in Alberta

As discussed in Part I, the Mines and Minerals Act[14] dictates that the Crown owns the pore space with respect to CO2 sequestration, and may enter into lease agreements to grant the right to inject captured CO2 into a subsurface reservoir.[15] Upon obtaining a well license and approval of the Regulator under the Oil and Gas Conservation Act,[16] CCUS/CCS lessees are required to comply with approved monitoring, measurement, reporting, verification, and working requirements under such lease agreements, submit closure plans for approval by the Minister, and comply with closure plans that have been approved.

Lessees are also required to pay fees into the Post-Closure Stewardship Fund, which is used to monitor the behaviour of captured CO2 that has been injected pursuant to a lease agreement, fulfill any obligations that are assumed by the Crown as the owner of a well, or for suspension costs, abandonment costs, or related reclamation or remediation costs in respect to orphaned facilities. The Post-Closure Stewardship Fund fee amount is calculated per tonne of captured CO2 injected into the location of a carbon sequestration lease at the rate established by the Minister.[17]

Once a lessee performs all closure activities in accordance with the lease agreement and the regulations, the lessee may apply to the Minister for a closure certificate pursuant to section 120 of the Mines and Minerals Act. A closure certificate will be issued by the Minister if the Minister is satisfied that the lessee has complied with all monitoring and closure requirements, the lessee has abandoned all wells and facilities in accordance with the requirements under the Oil and Gas Conservation Act and its’ regulations, the lessee has complied with the reclamation requirements under the Environmental Protection and Enhancement Act,[18] the closure period specified in the regulations has passed, the conditions specified in the regulations have been met, and the captured CO2 is behaving in a stable and predictable manner, with no significant risk of future leakage.[19]

Section 121 of the Mines and Minerals Act specifies that upon the issuance of a closure certificate to a lessee, the Crown becomes the owner of the captured CO2 injected pursuant to the lease agreement, and assumes all obligations of the lessee as the person responsible for the captured CO2. Further, upon the issuance of a closure certificate, the Crown releases the lessee from any obligations with respect to the injected captured CO2, and the Crown shall indemnify a lessee against liability for damages in an action in tort brought by another party if the liability is attributed to the injection of captured CO2.

One noteworthy section with respect to liability for insolvent lessees is section 121(3) of the Mines and Minerals Act, which specifies that if a lessee ceases to exist prior to the issuance of a closure certificate, the Crown may assume ownership of the captured CO2. Presumably, the Crown would use the Post-Closure Stewardship Fund to fund all activities associated with these activities as well.

Essentially, the operator of a CCUS/CCS well or facility bears liability for the injected captured CO2 up until the point that a closure certificate is issued by the Minister, at which point the Crown then assumes long-term liability for CCUS/CCS storage sites. In doing so, the Government of Alberta is permitted to use the Post-Closure Stewardship Fund for ongoing monitoring and any required maintenance and remediation currently under the Carbon Sequestration Tenure Regulation.

The above liability framework was described in Shell Canada Ltd. Re, 2012 ABERCB 8, which was an application by Shell Canada with respect to a carbon capture and storage project before the Energy Resources Conservation Board (the “ERCB”, now Alberta Energy Regulator). Shell had applied for a pipeline to transport dense-phase CO2, and to dispose of and inject CO2 into the Basal Cambrian Sands across several injection wells. During the hearing, a number of issues were raised by interveners with respect to accountability and liability for the project.[20] The Board noted that all licensees are responsible for the care and custody of their wells, pipelines, and facilities, and that they must have reasonable insurance coverage (and maintain that insurance coverage) that is appropriate for the size of the company and the type of operation that the company carries out.[21] The Board also noted that it requires abandonment and reclamation of oil and gas facilities be carried out by licensees and working-interest participants, and that it had programs in place to ensure sufficient funding to cover abandonment and reclamation of such facilities, wells, and pipelines.[22] Finally, the Board noted that with respect to the intervener’s concerns regarding Shell’s liability for damage to their property, the Alberta Courts, not the ERCB, had the authority to address such claims.

In its position, Shell argued that the legislative framework in Alberta established long-term liability and pore space access for long-term geological sequestration of CO2.[23] In finding that Shell’s CCS project had satisfied the Board’s requirements, the Board noted that one of the purposes of the Oil and Gas Conservation Act is to ensure safe and efficient practices and operations involving the storage or disposal of substances,[24] and that the Government of Alberta had enacted legislation to provide for the funding of CCS projects, to establish a framework to address long-term liability for stored or sequestered CO2, and to address access and ownership of pore space for CO2 storage.[25] The ERCB specifically stated:

 Shell understands that responsibility and liability for the sequestration project would be transferred to the GOA after the operating phase of the project has ceased and after the closure phase is completed to the satisfaction of the GOA. Shell must demonstrate that the sequestration of the CO2 is securely contained within the storage complex. The GOA would then issue a closure certificate.[26]

The legislative framework described above, as well as in Part I, outlines the development and regulatory oversight for CCUS/CCS projects, and is intended to ensure that the initial liability is shouldered by proponents, project developers, and leaseholders, with provisions for the eventual transfer of that liability to the Government of Alberta if the proponent can establish that the captured CO2 is behaving in a stable and predictable manner, with no significant risk of future leakage.

While this framework is a significant consideration in relation to CCUS/CCS investment concerns, our research indicates that there are still perceived financial risks of CCUS/CCS investments with respect to startup funding, the possible elimination of the industrial carbon price, or the collapse of the carbon credit market.[27] However, the provincial and federal governments have each publicly committed to investments to improve the commercial viability of CCUS/CCS technologies.[28] Notably, the federal $15 billion Canada Growth Fund, which committed the federal government to reaching agreements with emitters who conduct CCUS, is intended to backstop the future price of carbon to provide predictability to de-risk projects.[29] Such programs may cause the development of a more stable market for investment in CCUS/CCS in Alberta.

Future Considerations

While there are numerous CCUS/CCS projects that await final investment decisions,[30] Alberta’s CCUS/CCS regulatory and liability frameworks appear relatively robust – although they have yet to be tested. Alberta’s current framework places initial liability on operators and leaseholders, includes requirements for monitoring, testing and reporting, and allows for liability to be transferred to the Government of Alberta in conjunction with the Post-Closure Stewardship Fund to offset the costs that Alberta may incur with future long-term monitoring and maintenance of those sites.

The larger issue in Alberta appears to be investment hesitation with respect to the financial aspects of the price of carbon and carbon capture offsets, rather than liability concerns. It will however be interesting to see how liability issues will be dealt with in practice, whether financial opportunities will continue to be offered through both the provincial and federal governments, and whether CCUS/CCS will be a stable, long-term solution to climate change in Alberta. Stay tuned for future updates on this topic.

For more information on the regulatory framework of CCUS/CCS projects, contact Stuart Chambers, Aaron Mann, or any member of our Environmental & Energy practice group.