Business Law Blog

Part 1: British Columbia’s Evolving Regulation of Carbon Capture and Storage

The release of the federal government’s 2022 budget highlights the tension between commitments to a net-zero economy and the enduring importance of fossil fuels in Canada. The government’s 2030 Emissions Reduction Plan, published pursuant to the Canadian Net-Zero Emissions Accountability Act (which enshrines Canada’s commitment to achieve net-zero greenhouse gas emissions by 2050 in law), noted that competing in a future that will see “continued oil and gas use globally, but with demand declining significantly in the coming decades” will require that Canada “offer lower carbon oil and gas to the world.”

In other words, while the commitment to net-zero by 2050 remains, the path to net-zero in Canada promises to follow a gradual transition from fossil fuels, partly supported by investment in new technology. In that context, the 2030 Emissions Reduction Plan pledged “a carbon capture, utilization and storage strategy”^[1] and, specifically, the introduction of “an investment tax credit to incentivize the development and adoption of this important technology.”^[2] The inclusion of a CCUS credit in the 2022 budget begins to deliver on that pledge.

However, because the regulation of CCUS projects falls within provincial jurisdiction, the federal government’s commitment to a CCUS strategy engages provincial regulatory regimes still adapting to this element of the transition. British Columbia’s regime was re-tooled in 2015 to accommodate the potential for CCS projects, but its development is ongoing, and further changes are expected.

Regulation of Carbon Capture and Underground Storage Projects in British Columbia

In British Columbia, projects of the nature of CCS are not new. The province has a long history of oil and gas operations, and project operators have received approval for the subsurface disposal of waste products for a number of years, including the disposal of acid gas (acid gas being a combination of CO₂ and hydrogen sulfide).

In 2015, the provincial government amended the Petroleum and Natural Gas Act (PNGA) and the Oil and Gas Activities Act (OGAA) to accommodate CCS projects that involve the underground storage of CO₂ within the existing oil and gas regulatory framework. These amendments resulted in a process whereby proponents apply to British Columbia’s Minister of Energy, Mines and Low Carbon Innovation (the “Minister”) to acquire a lease for storage of the captured CO₂, and to British Columbia’s Oil and Gas Commission (the “OGC”) for a permit to operate the CCS project. The OGC then remains the life-cycle regulator of the project.

Therefore, generally speaking, at least for now, proponents interested in pursuing a CCS project must follow the same processes as oil and gas proponents in relation to obtaining storage and disposal rights and operation approval, complying with monitoring requirements, and abiding by closure and post-closure procedures.

Acquisition of Storage Rights

A project proponent must obtain the rights to access the space for storage of the CO₂ by obtaining either a licence to explore for a storage reservoir, or a lease for the use of a storage reservoir. Only holders of petroleum or natural gas permits, drilling licences or leases, or persons who have licences to explore for a storage reservoir, may apply to the Minister to lease a storage reservoir. If a proponent is not already a holder of such a permit, licence or lease, it must first apply for a licence to explore the proposed storage reservoir.

All storage reservoir tenure requests are subject to a pre-tenure review, which involves a referral process where the Minister seeks input on concerns and comments from local governments, Indigenous groups, the OGC and other provincial government agencies that may have knowledge about the area in question. The Minister’s decision to issue a licence to explore for a storage reservoir or for the lease of a storage reservoir is discretionary, and projects are adjudicated on a project-by-project basis. The pre-tenure review may result in conditions in the applicable tenure documents, and the referral process may result in some parcels not being put forward, being reconfigured or being deferred for disposition at a later date. Under the Petroleum and Natural Gas Storage Reservoir Regulation, there is currently a prohibition on the acquisition of storage rights within B.C.’s Lower Mainland region.

Project Permitting

In order to operate a CCS project, proponents must obtain approval from the OGC. The full range of operational requirements falls outside the scope of this article, but range from the development of emergency response plans and compliance with design, construction, and environmental standards, to the duty to consult with and accommodate Indigenous groups. Of note is the OGC’s adoption of the Canadian Standards Association’s CCS Standard (CSA Z741) under the Drilling and Production Regulation. Further, the OGC maintains the authority to inspect and monitor operational activities under the OGAA, including CCS projects.

As with oil and gas operations, CCS proponents are responsible for the remediation and reclamation of sites after operations cease. As a result, proponents must obtain a Certificate of Restoration from the OGC and pursue restoration in compliance with that certificate. Based on the current regulatory regime, CCS operators are liable in perpetuity for any remediation and damages stemming from future CO₂ leakages on their closed sites. Overall, these regulatory measures ensure the ongoing safety of storage sites despite a formal end of operations.

Potential Changes to B.C.’s CCS Regulatory Policy

With changes in policy and technology relating to CCUS, the provincial government is currently contemplating changes to the CCS regime that recognize the intricacies and potential challenges of CCS that are not fully addressed by the existing oil and gas regulatory framework. While it is not clear yet what the regulatory framework will entail, the best indicator is the B.C. government’s January 2014 Carbon Capture and Storage Regulatory Policy Discussion Paper (available here), which introduced a potential CCS regulatory policy framework (“RPF”). The RPF includes changes under consideration in relation to storage rights, CCS operations, monitoring, and closure and post-closure assurance, including the following:

Acquisition of Storage Rights

• Approvals for CCS project storage rights would continue to be adjudicated on a project-by-project basis at the Minister’s discretion, but if there is increased competition over storage reservoirs the Minister may use a competitive bid disposition process (similar to that use for oil and gas tenures).
• Storage reservoir leases would be divided into three categories — developmental, operational, and post-closure — with corresponding term lengths and rights of extension. The Minister would oversee a project moving between categories and maintain the discretion to extend leases by prescribed increments.
• Storage reservoir leases would be issued for up to seven years, with an option at the end of the initial term to convert to an operational lease of up to 30 years with possibility for renewal for one or more additional terms of 10 years, and would be subject to periodic review every five years to determine whether a project is on target in terms of capacity utilization. Should a project not be meeting its capacity utilization target, the Minister may remove unused areas from the lease.
• Applications would be subject to a rigorous site characterization and selection process, including the submission of detailed project plans incorporating community and Indigenous engagement plans.
• A separate regulatory body, the Storage Reservoir Stewardship Board, would be tasked with overseeing the lease and project application process.

Project Permitting

• CCS project proponents would be required to develop injection plans that include a description of the mechanisms of geologic confinement and monitoring plans that meaningfully address leakage concerns and associated safety risks, including the potential for some degree of monitoring past the post-closure phase.
• A project operator would continue to maintain liability, monitoring, maintenance and remediation responsibilities during a proposed “post-closure assurance phase” of a minimum of 15 years before applying to the Storage Reservoir Stewardship Board to deem the assurance phase completed.
• CCS operators would contribute to a reservoir stewardship fund that would protect the public from long-term liabilities and adequately cover any remediation and damages from post-closure leakages. With the reservoir stewardship fund in place, the B.C. government would assume long-term liabilities and stewardship responsibilities associated with CCS projects, thereby substantially decreasing the costs and risks assumed by CCS project proponents.

Notably, these potential amendments, like the current regime, would apply only to underground C0₂ storage. There is an open question as to whether there is any regulation in B.C. of CCS projects that dispose of C0₂ by other means. For example, CCS projects are not directly addressed in B.C.’s environmental assessment legislation. However, B.C.’s Environmental Assessment Act and the associated Reviewable Projects Regulation do require that most large projects go through the provincial environmental assessment process, including industrial projects, energy projects and waste disposal projects meeting certain criteria. As a result, we can likely expect that the Reviewable Projects Regulation may at some point be updated to ensure that proposed CCS projects undergo environmental assessment.

Conclusion

The B.C. government initially capitalized on its existing oil and gas regulatory regime to accommodate CCS projects. However, while the infrastructure required for CCS generally intersects with oil and gas operations, the provincial government has recognized that further updates to the regulatory regime will be required. The federal government’s decision to make its new investment tax credit for CCUS available for projects with geological storage only in Alberta and Saskatchewan^[3] may motivate the implementation of those updates. Additional regulation of CCUS at the federal level is likely as well. We will continue to monitor any developments in the regulation of CCS in B.C. and provide updates in future blog posts.

If you have any questions about CCUS or its regulation in British Columbia, please contact the authors or any member of our Environmental & Regulatory Group.

_{[1] CCUS is a greenhouse gas (“GHG”) emissions mitigation method that involves the capture of carbon dioxide (CO2) from fossil or biomass-fuelled power stations, industrial facilities or directly from the air. Once captured, that CO2 is then transported, often by pipeline, to either the point of storage in the pore space of rock formations deep underground, or is used as an input or feedstock to create products or services. This article is focussed on Carbon Capture and Storage (“CCS”) projects, which involve underground storage, as opposed to the use of CO2 as an input or feedstock.}

_{[2] The refundable CCUS Credit will only be available to businesses that incur “eligible expenses” in connection with “eligible CCUS projects” that permanently store captured CO2 via an “eligible use”. The CCUS Credit is described in detail in Part 2 of this blog post, available here.}

_{[3] The tax credit is only available for geological storage projects “in jurisdictions where there are sufficient regulations to ensure that CO2 is permanently stored as determined by Environment and Climate Change Canada,” which currently consists only of Alberta and Saskatchewan.}