Abstract
This paper explores how the widely held public policy view of the evolution of the risk profile associated with geologic carbon dioxide (CO 2) storage profoundly influences the public policy dialogue about how to best address the long-term risk profile for geologic storage. Evidence emerging from research and pilot scale field demonstrations of CO 2 storage demonstrates that, with proper site characterization and sound operating practices, retention of stored CO 2 will increase with time thus invalidating the premise of an ever growing risk. The authors focus on key issues of fit, interplay, and scalability associated with the ability of a trust fund funded by a hypothetical $1 per tonCO 2 tipping fee for each ton of CO 2 stored in the United States under WRE450 and WRE550 climate policies to manage such risks in an economically efficient and environmentally effective manner. The authors conclude there is no intrinsic value – in terms of risk management or risk reduction – in creating a trust fund predicated solely on collecting a universally applied tipping fee that does not take into account site-specific risk profiles. If left to grow unchecked, a trust fund that is predicated on a constant stream of payments unrelated to each contributing site's risk profile could result in the accumulation of hundreds of billions to more than a trillion dollars contributing to significant opportunity cost of capital. Further, rather than mitigating the financial consequences of long-term CCS risks, this analysis suggests a blanket $1 per tonCO 2 tipping fee, if combined with a concomitant limitation of liability may increase the probability and frequency of long-term risk by eliminating financial incentives for sound operating behavior and site selection criteria—contribute to moral hazard. At a minimum, effective use of a trust fund requires: (1) strong oversight regarding site selection and fund management, and (2) a clear process by which the fund is periodically valued and funds collected are mapped to the risk profile of the pool of covered CCS sites. Without appropriate checks and balances, there is no a priori reason to believe that the amount of funds held in trust will map to the actual amount of funds needed to address long-term care expenses and delimited compensatory damages. For this reason, the authors conclude that financing a trust fund or other risk management instrument should be based on a site delimited estimate of potential future expected financial consequences rather than on the random adoption of a fixed funding stream, e.g., a blanket $1 per ton, because it “sounds” reasonable.
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