CHAPTER 3: STORAGE OF CARBON DIOXIDE

     SUMMARY AND BACKGROUND

48.     Carbon Capture and Storage (CCS) is a process involving the capture of carbon dioxide from the burning of fossil fuels, its transportation, and storage in secure spaces, such as geological formations, including under the seabed. CCS can be applied to a range of industrial processes including coal-fired and gas-fired electricity generation. It has the potential to reduce carbon dioxide emissions by up to 90% of standard coal-fired generation. The Stern Review ¹ highlighted the potential role that CCS could play in tackling climate change, with the potential to contribute up to as much as 28% of global carbon dioxide mitigation by 2050. However, CCS has not yet been applied to commercial-scale electricity generation.

¹ The Stern Review - The Economics of Climate Change. Nicholas Stern, 2006

49.     The Government is committed to the development of CCS with electricity generation. The Government launched a competition in November 2007 to support a CCS demonstration project in the UK. This will be one of the first demonstrations anywhere in the world. The objective is for the demonstration project to be operational by 2014. The demonstration cannot proceed without an appropriate legislative regulatory regime being in place.

50.     Most of the activities involved in CCS are standard industrial processes and can be readily regulated by established legislation. However, permanent storage of carbon dioxide is a novel activity, and existing legislation to control depositions below the surface of the land and seabed is not well suited to licensing the storage of carbon dioxide. This Chapter of the Bill establishes a framework for the licensing of carbon dioxide storage and the enforcement of the licence provisions. It also applies existing offshore legislation (for example the decommissioning legislation in the Petroleum Act 1998) to offshore structures used for the purposes of carbon dioxide storage. Chapter 1 of Part 1, amongst other things, asserts the UK's rights to the use of the offshore sub-surface space for the storage of carbon dioxide.

51.     The framework is limited to the offshore area. This is due to the fact that this area is likely to be of primary interest to developers in the short-term. Moreover, storage of carbon dioxide onshore requires amendment of existing EU Directives. Whilst such amendment is likely to form part of a Commission proposal for a Directive on carbon dioxide storage due to be published in January 2008, the details of any Directive finally adopted will be a matter for agreement within the EU Council and the European Parliament. We expect the proposed Directive to also set out a framework for regulating the storage of carbon dioxide (onshore and offshore). However, this may not be agreed in time to fit in with the timeframe of the CCS demonstration project. The provisions in this Chapter are intended to provide sufficient flexibility for the EU regime to be readily implemented once agreed at the European level in relation to the offshore area.

52.     The clauses in Chapter 3 potentially engage several of the Articles of the ECHR. Certain of the provisions involve what is likely to amount to a determination, by the Secretary of a State, of a person's civil rights and obligations, and consequently engage Article 6(1) of the ECHR (or, in some cases, affect property rights under Article 1 of the First Protocol). The Secretary of State considers that, in the present context, the availability of judicial review against such a decision will provide a sufficient safeguard of any rights that may arise under those Articles.

53.     Furthermore, a number of clauses in Chapter 3 create offences which provide for a reverse burden defence of "due diligence" which must be established by the defendant on the balance of probabilities. Although such a defence engages Article 6(2) of the ECHR (presumption of innocence), since it places a legal burden of proof on the defendant, in the present case the Secretary of State is satisfied that the burden is fair and proportionate, so that the provisions are compatible with the ECHR.

     COMMENTARY ON CLAUSES

     Activities requiring a licence

     Clause 16: Prohibition on unlicensed activities

54.     This clause prohibits the following activities from being carried out, except in accordance with a licence granted under clause 17:

• storage of carbon dioxide with a view to its permanent disposal;

• conversion of a natural feature (for example, a saline aquifer) for such storage;

• exploration for a carbon dioxide storage site; and

• establishment or maintenance of an installation for any of those purposes.

     Temporary storage of carbon dioxide will also require a licence, if such temporary storage is an interim measure prior to its permanent disposal.

55.     Subsection (3) sets out the area within which activities are subject to those controls. It consists of the territorial sea adjacent to the United Kingdom (the territorial sea extends 12 nautical miles from baselines established under the Territorial Sea Act 1987 (c. 49)), together with any area designated as a Gas Importation and Storage Zone (see clause 1). However, the area does not include the territorial sea adjacent to Scotland.

     Licensing

     Clause 17: Licences

56.     This clause allows the Secretary of State, or an authority to which the relevant function has been transferred under clause 33, to grant licences for the purposes of this Chapter. Such a licence will permit, under the terms and conditions laid down in the licence, the carrying out of one or more of the activities mentioned in clause 16. However, in order to make use of the sea, the seabed or spaces under the seabed for the purpose of these activities, an operator would in addition have to obtain a lease or authorisation from The Crown Estate, who administer the relevant rights to the offshore area. Subsection (2) accordingly allows the geographical coordinates covered by the licence to be linked to those covered by the lease or authorisation from The Crown Estate (see also clause 19 (4)).

     Clause 18: Requirements relating to grant of licences

57.     This clause gives the Secretary of State the power to make regulations (subject to negative resolution procedure - see clause 89) prescribing the conditions that the applicant may be required to meet in order to obtain a licence, as well as any other requirements that must be satisfied prior to the licence being granted. In particular, the regulations may set out:

• who can apply for a licence;

• how the application for a licence must be made;

• the information which an application must contain and any accompanying documents;

• an application fee (which would have to reflect the costs of considering the application); and

• a requirement for the applicant to provide financial security (such as a letter of credit, a fund held on trust, or another form of security) in respect of any obligations arising in connection with the licensed activities. The obligations in relation to which financial security may be required are not restricted to those laid down by the licence, and may take into account, for example, any liabilities that may arise in connection with a carbon dioxide store (such as any

• liability that may arise under the EU Emissions Trading Scheme). While such security may not be needed in every case, the intention of requiring such a security would be to protect the public purse against the risk of the licensee failing to meet its obligations arising from its activities under the licence. Where a financial guarantee is required, then it will be required as a condition of the licence being granted, and not as a condition of making an application.

     Clause 19: Terms and conditions

58.     This clause gives the Secretary of State (or an authority to which the relevant function has been transferred under clause 33) a power to grant licences on such terms and conditions as that licensing authority thinks fit. The powers of that licensing authority are, however, subject to the Secretary of State's power under clause 20 to prescribe, by regulations (subject to the negative resolution procedure - see clause 89), the provisions which must be contained in a licence.

59.     By subsection (3) a licence may include provisions about the following matters (amongst other things):

• the financial security that may be required (in addition to the security required under clause 18), or the release of any existing financial security during the licensing period (for instance to reflect a change of circumstances, such as an improvement in the operator's financial standing);

• a power to allow the licensing authority to review or modify the licence;

• a power to prevent, or enable the licensing authority to prevent the licence holder, in specified circumstances (such as where there is evidence to suggest that the store poses a significant environmental risk), from carrying on an activity (for example, the continued injection of carbon dioxide).

60.     In addition to imposing conditions on the process of injecting carbon dioxide, the licence may also impose obligations on the licence holder after the activity of carbon dioxide injection has permanently ceased. Therefore licences will be able to cover both a period during which injection is taking place, and a subsequent period, during which it is expected the stability of the store would have to be demonstrated through monitoring and other activities prior to termination of the licence.

61.     Subsection (4) ensures that the commencement and duration of the licence can be linked to that of the corresponding lease or authorisation from The Crown Estate.

62.     Subsection (5) ensures that a licence can include an authorisation for the transfer of the licence to another person or the inclusion of another person as a party to the licence, subject to any conditions set out in the licence. Such conditions might for instance include obtaining the prior consent of the licensing authority for such a transfer.

63.     Subsections (6) and (7) ensure that provisions in the licences can include conditions to obtain consent from the Secretary of State (or an authority to which the relevant function has been transferred under clause 33) for specified acts or omissions. Such consent may itself be granted subject to conditions.

     Clause 20: Content of licences: regulations

64.     This clause gives the Secretary of State the power to make regulations (subject to negative resolution procedure - see clause 89) about the terms and conditions which must be included in licences to be granted under clause 17.

     Enforcement

Clause 21: Offence to carry on unlicensed activities

65.     This clause makes it an offence for a person to carry out any of the activities listed in clause 16 unless that person has a licence issued under clause 17, or is a person (such as a contractor or sub-contractor) who carries out the relevant activity on behalf of a licensed person. It is also an offence to cause or permit such unlicensed activities to be carried out (for example by getting a contractor to do so).

66.     Subsection (3) sets out the penalties for those offences (on summary conviction, a fine not exceeding £50,000 and, on conviction on indictment, imprisonment for a term not exceeding two years or an unlimited fine, or both). These penalties are set at the same level as those in Part 2 of the Food and Environment Protection Act 1985 (c. 48) (FEPA), as amended by the Environmental Protection Act 1990 (c. 43).

67.     Subsection (4) provides, however, for a lesser penalty in circumstances where the activities in question are limited to exploration (rather than for instance the activity of carbon dioxide storage). On summary conviction, a person will be liable to a fine not exceeding the statutory maximum (currently £5,000 in England, Wales and Northern Ireland and £10,000 in Scotland) and, on conviction on indictment, to an unlimited fine.

     Clause 22: Offences relating to licences

68.     Once a licence has been granted, it will also be an offence to breach certain of its provisions. Subsection (1) specifies breaches which will give rise to an offence, and gives the Secretary of State a power to specify by order (subject to the negative resolution procedure - see clause 89) further kinds of breaches of licences that will amount to an offence. Other enforcement powers will be available in respect of breaches which are not criminal offences: see in particular clause 23. The breaches attracting criminal penalties under the present clause include:

• doing something that requires the licensing authority's consent, without obtaining such consent (for example, where the regulatory authority's consent is required before commencing injection of carbon dioxide); and

• a failure to keep records, notify, or make a return or report, as required by the licence.

69.     Only the licence holder will be liable for offences under this clause, including where the act or omission in question results from the behaviour, for example, of a contractor. However, subsection (2) provides that licence holder will have a defence if it can show that it exercised due diligence in trying to avoid committing the offence. In circumstances where the contractor was responsible for a breach, the licence holder would have to show, for example, that it had exercised due diligence in supervising the behaviour of the contractor.

70.     Subsections (3) and (4) set out the penalties for those offences. These are identical to those for undertaking a licensable activity without a licence (clause 21 (3)) (a fine not exceeding £50,000 and, on conviction on indictment, imprisonment not exceeding two years or an unlimited fine, or both; and lesser penalties in relation to exploration activities: on summary conviction, a fine not exceeding the statutory maximum (currently £5,000 in England, Wales and Northern Ireland and £10,000 in Scotland) and, on conviction on indictment, an unlimited fine).

71.     Subsections (5) and (6) create offences where a person knowingly or recklessly makes a false statement in order to obtain a licence, or any required consent, or fails to disclose information which that person knows, or ought to know, to be relevant to a licence application or to that consent. Subsection (7) sets out the penalties for the offences in subsections (5) and (6): on summary conviction, the person found guilty of the offence would be liable to a fine not exceeding the statutory maximum (currently £5,000 in England, Wales and Northern Ireland and £10,000 in Scotland), or, on conviction on indictment, an unlimited fine.

     Clause 23: Secretary of State's power of direction

72.     Where there has been a breach of a licence condition, this clause enables the Secretary of State (or an authority to which the relevant function has been transferred under clause 33), to direct that the licence holder takes appropriate steps to remedy the breach. For example, if the licence requires equipment to be maintained to a good standard, a direction may require the equipment to be repaired or replaced. Subsection (3) requires the Secretary of State (or that authority) to consult the licence holder before a direction is made.

73.     If the licence holder fails to comply with the direction, the Secretary of State (or that authority), may, under subsections (4) to (8), ensure that the necessary action is taken, at the expense of the licence holder, and (if so directed) with the latter's assistance.

74.     Subsection (9) ensures that this clause does not affect any provision made by the licence itself for its enforcement (for instance, the licence may itself give the Secretary of State powers of direction in certain circumstances).

     Clause 24: Failure to comply with a direction under section 23

75.     Subsection (1) of this clause provides that a failure to comply with a direction under clause 23 is a criminal offence, with the penalties set out in subsection (2): a fine of up to the statutory maximum (currently £5,000 in England, Wales and Northern Ireland and £10,000 in Scotland) on summary conviction, or an unlimited fine for conviction on indictment.

     Clause 25: Injunctions restraining breaches of section 16(1)

76.     This clause gives the Secretary of State (or an authority to which the relevant function has been transferred under clause 33) the power to apply to the court for an injunction (or, in Scotland, interdict) to prevent or require cessation of activities prohibited by clause 16(1). For example, where there is evidence that a carbon dioxide storage-related activity is being carried out without a licence, the Secretary of State may apply for an injunction requiring the operator to cease the activity. The power is in addition to any other powers the Secretary of State may have under this Chapter.

     Clause 26: Inspectors

77.     Subsections (1) and (2) of this clause allow the Secretary of State (or an authority to which the relevant function has been transferred under clause 33), to appoint persons to act as inspectors to assist in the carrying out of functions under this Chapter, and enable the inspectors to be remunerated.

78.     Subsection (3) gives the Secretary of State the power to make regulations (subject to the negative resolution procedure - see clause 89) setting out the powers and duties of the inspectors and any other person acting on the directions of the Secretary of State in connection with a function under this Chapter (such persons may include, for example, surveyors or other contractors instructed by the Secretary of State). These are likely to include, for example powers of entry, investigation and the right to take samples.

79.     Subsection (5) enables such regulations to create criminal offences (for example it might be an offence to obstruct an inspector in the exercise of functions under the regulations). Such offences would attract the penalty of a fine not exceeding the statutory maximum (currently £5,000 in England, Wales and Northern Ireland and £10,000 in Scotland) or such lesser amount as is specified in the regulations, on summary conviction or, on conviction on indictment, an unlimited fine.

     Clause 27: Criminal proceedings

80.     Subsection (1) ensures that an offence arising by virtue of the provisions of this Chapter may be prosecuted in any part of the United Kingdom, regardless of the offshore location at which the offence may have been committed.

81.     Subsections (3) and (4) ensure that prosecutions for such offences alleged to have been committed in a controlled place (i.e. within the territorial sea or a Gas Importation and Storage Zone) may be brought only by the Secretary of State or a person authorised by the Secretary of State (or an authority to which the relevant function has been transferred under clause 33 or a person authorised by such an authority), or by or with the consent of the Director of Public Prosecutions (or the Director of Public Prosecutions for Northern Ireland). Such provision is unnecessary in relation to Scotland, as there all prosecutions are brought by or on behalf of the Lord Advocate.

82.     Subsection (5) provides that the same restrictions procedure will apply to any prosecution for an offence created by regulations under clause 26, except that references to a person authorised by the Secretary of State (or by an authority to which the relevant function has been transferred under clause 33) are to be read as references to an inspector.

Registration

     Clause 28: Requirement for public register

83.     This clause requires the Secretary of State (or an authority to which the relevant function has been transferred under clause 33) to maintain a register containing prescribed information relating to licences, and enables the Secretary of State to prescribe the information that must be included in the register. The information to be included will be prescribed by regulations (subject to the negative resolution procedure - see clause 89), and might for example include details of licences issued, revoked or modified, and of any enforcement action taken in relation to those licences. However, provision is made by subsections (2) to (5) for certain information to be excluded from the register. By subsection (6) there will be free public access to the register, but a charge may be made for obtaining copies (which would have to reflect the costs of providing them).

84.     This clause is similar to section 14 of Food and Environment Protection Act 1985 (c.48) (FEPA), which requires the licensing authority to compile and keep certain particulars of FEPA licences and to make them available for public inspection.

     Abandonment of offshore installations

     Clause 29: Abandonment of installations

85.     Subsection (1) applies the provisions of Part 4 of the Petroleum Act 1998 to offshore structures that are installed for the purposes of carbon dioxide storage activities. As a result, the operators of such installations may be required to decommission them in a timely manner after operations have permanently ceased. Subsection (2) enables the Secretary of State, by regulations subject to negative resolution procedure (see clause 89), to make any appropriate modifications of the provisions of Part 4 of the Petroleum Act 1998 as they apply to such installations.

     Termination of the licence

     Clause 30: Termination of licence: regulations

86.     This clause gives the Secretary of State the power to make regulations (subject to negative resolution procedure - see clause 89) setting out the circumstances under which a licence may be terminated (which may be in addition to any termination provisions already contained in the licence). The regulations would also be able to require the Secretary of State (or an authority to which the relevant function has been transferred under clause 33) to take on the responsibility (including any financial liability) for the management of a carbon dioxide store on or after the termination of a licence. The intention is that regulations will, in particular, set out the conditions (in addition to any licence provisions) that must be met before the Secretary of State, or the said authority, can consent to the termination of a licence.

87.     Subsection (3) ensures that any provisions of a licence granted under clause 17 which relate to the termination of the licence are subject to the provisions made by such regulations.

     Miscellaneous

     Clause 31: Safety zones

88.     Sections 21, 23 and 24 of the Petroleum Act 1987 provide for the automatic establishment of safety zones around oil and gas installations and set out offences and the applicable penalties in connection with such safety zones. This clause extends those provisions to installations used for carbon dioxide storage. Such safety zones are areas extending 500 metres around the installation, from which vessels are prevented from entering or remaining except in accordance with regulations made by the Secretary of State or a consent given by the Health and Safety Executive. The penalty for such an offence is a fine not exceeding the statutory maximum (currently £5,000 in England, Wales and Northern Ireland and £10,000 in Scotland) on summary conviction and, on conviction on indictment, imprisonment not exceeding two years or an unlimited fine, or both.

     Clause 32: Enhanced petroleum recovery: power to make orders

89.     Carbon dioxide can be used to improve the recovery of hydrocarbon production in a process known as Enhanced Oil Recovery (EOR) (which may also be applied to the recovery of natural gas). Subsection (1) ensures that the provisions of this Chapter do not extend to the use of carbon dioxide for the purpose of EOR, unless they are so extended by an order made by the Secretary of State (subject to negative resolution procedure - see clause 89). The intention is to use this power, for example, to ensure that the requirements of this Chapter extend to operators undertaking an EOR activity if those operators wish to claim credits under the EU Emissions Trading Scheme (once carbon dioxide storage projects are included in that scheme). In the circumstances defined by an order under this subsection, a licence under clause 17 would be required, as well as an authorisation (or, within the territorial sea, a lease) from The Crown Estate. (The latter requirement would not, however, apply in a case covered by subsection (3).)

90.     Subsection (3) provides that the Secretary of State may, by the same order and, for example, for the purpose indicated above, extend the application of this Chapter to EOR activities carried out in the area of the Continental Shelf, as defined in section 1(7) of the Continental Shelf Act 1964, where the area in question falls outside any area designated as a Gas Importation and Storage Zone.