Energy Excursions

State Primacy for Class VI Wells

Though most oil and gas producing states have primacy for Class II wells and regulate these wells (injection wells pertaining to oil and gas operations) under their own state programs, the only states that have successfully received Class VI primacy are North Dakota (2018) and Wyoming (2020). In April 2010, months before the U.S. Environmental Protection Agency (EPA) codified Class VI wells, North Dakota became the first state in the United States to implement a comprehensive regulatory framework for carbon sequestration. Even though North Dakota already had a well-established regulatory framework, it took seven years of amendments and negotiation to finalize their application for primacy.1EPA. (n.d.). What is UIC primary enforcement responsibility (primacy)? U.S. Environmental Protection Agency. Retrieved October 29, 2020, from https://www.epa.gov/uic/primary-enforcement-authority-underground-injection-control-program2Industrial Commission of North Dakota. (2018, April 10). EPA administrator signs final approval for North Dakota’s Class VI primacy application. Retrieved October 29, 2020, from http://www.nd.gov/ndic/ic-press/News%20Class%20VI%20primacy%20180510.pdf3EPA. (2020, September 3). In Cheyenne, EPA announces Wyoming’s primacy for Class VI Underground Injection Control Program, highlights final power plant effluent limitation guidelines rule. U.S. Environmental Protection Agency. Retrieved October 29, 2020, from https://www.epa.gov/newsreleases/cheyenne-epa-announces-wyomings-primacy-class-vi-underground-injection-control-program

Other U.S. States Eyeing Primacy

In September of 2020 Wyoming became the second state to receive Class VI primacy approval.4EPA. (n.d.). What is UIC primary enforcement responsibility (primacy)? U.S. Environmental Protection Agency. Retrieved October 29, 2020, from https://www.epa.gov/uic/primary-enforcement-authority-underground-injection-control-program5EPA. (2020, September 3). In Cheyenne, EPA announces Wyoming’s primacy for Class VI Underground Injection Control Program, highlights final power plant effluent limitation guidelines rule. U.S. Environmental Protection Agency. Retrieved October 29, 2020, from https://www.epa.gov/newsreleases/cheyenne-epa-announces-wyomings-primacy-class-vi-underground-injection-control-program We can expect other states with storage potential (e.g., Texas and Louisiana) to move towards primacy as the adoption of carbon capture, utilization and storage (CCUS) practices grows nationwide.

Texas and Class VI Primacy

State flag of Texas

Texas is well situated to become a world leader in CCUS because of its geologic storage capacity and oil and gas expertise, capabilities, and experience related to the injection of CO2 for purposes of enhanced oil and gas recovery. Recent actions by the Texas state legislature and the Texas General Land Office help clear and define the path for onshore and offshore CCUS deployment in Texas.6Hooks, A.M. and Windle, K. (2021, May 31). United States: Clearing The Path For Deployment Of Geologic Sequestration Of CO2 In Texas. Retrieved June 19, 2021, from https://www.mondaq.com/unitedstates/waste-management/1073600/clearing-the-path-for-deployment-of-geologic-sequestration-of-co2-in-texas

On May 21, 2021, the Texas legislature passed, with overwhelming support, House Bill 1284 (“H.B. 1284”), which paves the way for the Railroad Commission of Texas to obtain primacy from the EPA to administer the Class VI Underground Injection Control (UIC) program governing the permitting, operation, closure and post-closure site care for carbon storage facilities. H.B. 1284 passed with a vote of 142-2 in the Texas House of Representatives, and a unanimous 31-0 vote in favor of the bill in the Texas Senate. The overwhelming support for H.B. 1284 is further indication of Texas’ growing interest in encouraging CCUS.7Hooks, A.M. and Windle, K. (2021, May 31). United States: Clearing The Path For Deployment Of Geologic Sequestration Of CO2 In Texas. Retrieved June 19, 2021, from https://www.mondaq.com/unitedstates/waste-management/1073600/clearing-the-path-for-deployment-of-geologic-sequestration-of-co2-in-texas

On April 7, 2021, the General Land Office issued a request for lease proposals in Jefferson County, Texas for the establishment and operation of an offshore CO2 geologic storage facility under submerged state-owned land. The potential project would be the first offshore geologic storage project in Texas, and likely in the United States.8Hooks, A.M. and Windle, K. (2021, May 31). United States: Clearing The Path For Deployment Of Geologic Sequestration Of CO2 In Texas. Retrieved June 19, 2021, from https://www.mondaq.com/unitedstates/waste-management/1073600/clearing-the-path-for-deployment-of-geologic-sequestration-of-co2-in-texas

Policy Incentives

Policy incentives for CCUS include government-sponsored research and development, as well as economic incentives. The U.S. Congress has supported carbon storage via underground injection through recent legislation directing the U.S. Department of Energy to expand activities. In addition, the federal tax credit under Section 45Q for underground carbon storage has been revised and is considered more supportive of CCUS project development.

45Q Tax Credits

U.S. Internal Revenue Code Section 45Q provides a tax credit on a per-ton basis for CO2 that is sequestered. From 2008–2018, an incentive of $10/t for CO2 used for EOR or enhanced natural gas recovery and $20/t for CO2 geologic storage was available. This Section 45Q tax credit was capped at 75 Mt and in 2014, the IRS reported that 35 Mt had already been claimed.9DOE. (n.d.). Internal revenue code tax fact sheet. U.S. Department of Energy. Retrieved October 29,2020, from https://www.energy.gov/sites/prod/files/2019/10/f67/Internal%20Revenue%20Code%20Tax%20Fact%20Sheet.pdf

In February 2018, with the passage of the Bipartisan Budget Act of 2018, the tax credit was updated. The Section 45Q tax credit was increased to $35/t for enhanced recovery and $50/t for geologic storage by 2026. The $35 tax credit is also available for non-enhanced recovery CO2 utilization and direct air capture projects. Tax policies adopted by local, regional and state governments, such as the California Low Carbon Fuel Standard and elimination of sales tax on capture-transport-storage-related infrastructure by North Dakota, complement these federal tax incentives.10DOE. (n.d.). Internal revenue code tax fact sheet. U.S. Department of Energy. Retrieved October 29,2020, from https://www.energy.gov/sites/prod/files/2019/10/f67/Internal%20Revenue%20Code%20Tax%20Fact%20Sheet.pdf

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