Indiana is the most recent state to build out a regulatory structure in anticipation of significant carbon capture, utilization and sequestration (CCUS) project deployment. Last week, Governor Eric Holcomb signed into law H.R. 1209, which addressed common issues to carbon sequestration regulation, including pore space ownership, liability, permitting, monitoring and mineral rights primacy. Many provisions of the bill are similar in terms and effect to legislation passed by early adopters in the CCUS space, including Wyoming, Montana and North Dakota. Relevant provisions of H.R. 1209 include the following:

Mineral Rights Primacy: The bill makes clear that “all rights and requirements” relating to carbon sequestration set forth in the bill are subordinate to “rights pertaining to oil, gas, and coal resources” and may not adversely affect such resources.

Pore Space Ownership: Ownership rights to pore space are vested in the surface estate owner, provided that they have not been previously conveyed.

Unitization: If at least two pore space owners own pore space located within a proposed carbon dioxide storage area of a storage facility, the owners may agree to integrate their interests to develop the pore space as a proposed storage facility for the underground storage of carbon dioxide. However, if all the owners of the pore space do not agree to integrate their interests, the Department of Natural Resources (Department) may issue an order requiring the owners to integrate their interests and to develop the pore space if the storage operator has obtained the consent of the owners of the pore space underlying at least 70 percent of the surface area above the proposed storage facility.

Application for Permit: A storage operator must possess a UIC Class VI permit and a carbon sequestration permit from the Department. An application to the Department for a permit for a carbon sequestration project must include the following:

1. A filing fee of $1,000.
2. The signature of the applicant.
3. A statement verifying that the information submitted is true, accurate and complete to the best of the applicant’s knowledge.
4. Information illustrating that the applicant has the financial, managerial and technical ability to construct, operate and maintain a carbon sequestration project.
5. Information illustrating that the applicant or the contractors or subcontractors of the applicant have the requisite expertise in constructing, operating and maintaining a carbon sequestration project.
6. Documentation to the Department describing the scope of the proposed carbon sequestration project.
7. A statement describing how the applicant will construct, operate and maintain the proposed carbon sequestration project in accordance with applicable local, state and federal law to ensure the safety of the carbon sequestration project employees and the public.
8. A statement that the interests of a mineral lessee or mineral owner will not be adversely affected.

Establishing a Fund: The Carbon Dioxide Storage Facility Trust Fund is established to defray the costs incurred by the Department for the long-term monitoring and management of a carbon sequestration project. Storage operators must provide an annual estimate of the amount of carbon dioxide to be injected into a storage facility and pay into the fund a fee of eight cents per ton of carbon dioxide estimated to be injected.

Drilling Near a Storage Facility: A mineral owner or mineral lessee shall provide written notice to a storage operator at least 31 days prior to drilling a well if the mineral owner or mineral lessee wishes to drill a well not more than (1) 330 feet from the surface location of a well pursuant to a UIC Class VI permit or (2) 500 feet from the uppermost confining zone of a carbon sequestration facility pursuant to a UIC Class VI permit.

Carbon Dioxide Ownership: Unless there is documentation to the contrary, the storage operator has title to the carbon dioxide injected into and stored in a storage facility until a certificate of completion is issued by the Department, at which time ownership passes to the state.

Limitation of Liability: A claim of subsurface trespass shall not be actionable against a storage operator unless the claimant proves that injection or migration of carbon dioxide (1) is injurious to health, indecent, offensive to the senses, or an obstruction to the free use of property so as essentially to interfere with the comfortable enjoyment of life or property or (2) has caused direct physical injury to a person, an animal or tangible property. A surface or subsurface property interest holder is permitted to recover money damages only for the loss of a nonspeculative value resulting from the injection and migration of carbon dioxide beyond the storage facility. Punitive damages may be available if the storage operator violates the requirements of the UIC Class VI permit or acts with reckless disregard of public safety.

Transfer of Liability: Upon completion of a CCUS project, the storage operator may apply for a certificate of completion, which requires submission of representations and proof that the storage facility maintains mechanical integrity, the carbon dioxide therein is stable, and the storage facility is in compliance with various rules and regulations. Once a certificate of completion is issued, the state of Indiana assumes ownership and responsibility for the storage facility, and the storage operator and the owner of the storage facility are released from responsibility for all regulatory requirements associated with the storage facility and all potential liability associated with the storage facility.

Transportation of Carbon Dioxide: H.R. 1209 also sets forth certain requirements for issuance of a certificate of authority to pipeline companies wishing to construct and operate a pipeline for transmission of carbon dioxide. Notably, an applicant will be issued a certificate only if it has previously contracted with a producer of carbon dioxide within the state of Indiana. No certificate will be issued until after a public hearing process is completed.

Summary

Indiana is the latest of many states to pass significant CCUS legislation designed to address regulatory uncertainty and entice potential stakeholders in CCUS projects to deploy capital in the state. Following the passage of H.R. 1209, owners and operators of large-scale carbon emitters in Indiana will have a clearer path to deployment of commercial-scale CCUS projects.

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