Tipping Fees Can’t Save us from the Tipping Point: The Need to Create Rational Approaches to Risk Management that Motivate Geologic CO2 Storage Best Practices

Abstract

Abstract This paper explores the mismatch between the widely held public policy view of the long-term risk profile for carbon dioxide (CO2) storage with the emerging science and engineering of CO2 storage. We review the key issues of fit, interplay, and scalability associated with a trust fund funded by a hypothetical $ 1/ton CO2 tipping fee for each ton of CO2 stored in the United States under WRE450 and WRE550 climate policies. Left to grow unchecked, this hypothetical tipping fee fund would accumulate hundreds of billions to trillions of dollars before it would be expected to pay out claims caused by potential damage arising from CO2 storage. The authors conclude there is no intrinsic value in creating a trust fund predicated solely on collecting a tipping fee. Rather than mitigating the financial consequences of long-term CCS risks, this analysis suggests a blanket $ 1/ton CO2 tipping fee 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.