Hearing Of The Senate Energy And Natural Resources Committee - S. 1013, Department Of Energy Carbon Capture And Sequestration Program

Statement

Witness Panel I: Victor K. Der, Acting Assistant Secretary, Office Of Fossil Energy, U.S. Department Of Energy ; Kit Batten, Science Advisor, Office Of The Deputy Secretary, U.S. Department Of The Interior; Thomas E. Lubnau, II, State Rep. From Wyoming, House District 31; Panel II: John Tombari, Vice President And Associate General Counsel, Southern Company; Scott Anderson, Senior Policy Adviser, Environmental Defense Fund; Chiara Trabucchi, Principal, Industrial Economics, Inc.

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SEN. BINGAMAN: Okay, let me ask everyone to please be seated, and welcome everyone here. This -- we have a distinguished group of witnesses here. This is to consider S. 1013, which is the Department of Energy Carbon Capture and Sequestration Program Amendments Act of 2009.

Senator Barrasso and I introduced this bill along with Senators Dorgan, Tester, Bayh, Landrieu, Casey, Voinovich, Udall, and Conrad. It establishes a national indemnity program through the Department of Energy for up to 10 commercial scale carbon capture and sequestration projects.

Based on the input from industrial, environmental, NGO, and other organizations it's been made clear to me that there is a real need to -- for liability treatments and adequate project financing for early mover projects. The creation of an indemnity program for these large scale early mover projects is an important necessary step to building confidence for project developers as well as the public.

S. 1013 sets qualifying criteria that will help to ensure that these critical early mover projects will be conducted safely, while addressing the growing concern of reducing greenhouse gas emissions from industrial facilities such as coal and natural gas-fired utilities, cement plants, refineries, other carbon intensive industrial processes.

This legislation also maps out a clear framework for closing down a geological storage site. It's essential to consider the issue of safe, long-term storage of carbon dioxide. It's also critical to take the steps necessary for site stewardship during the injection phase directly following closure and for long-term preventative maintenance of the geologic storage site.

A science based monitoring and verification is required after the injection of carbon dioxide ends, to ensure that the carbon dioxide remains safely in place throughout the life of the project and well beyond the closure phase. This topic of reducing greenhouse gases, particularly carbon dioxide emissions, remains a great concern to me and to all members of the committee.

Carbon capture and geologic storage holds promise as a measure that can be used to mitigate global climate change while still allowing the use of fossil fuels at electricity generating plants and industrial facilities. I'd like to thank each of our witnesses who've come to testify as to the merits of the legislation, also the administration witnesses, as well as Tom Lubnau, who is here representing the state of Wyoming.

The efforts that he and the governor, Governor Freudenthal have undertaken in their state legislature to rapidly move forward with commercial carbon sequestration projects in Wyoming serves as a model for other states to look at. As well as to the efforts that we are -- a model for us to look at as we undertake, here in the Senate, to accelerate the deployment of this -- of such a promising greenhouse gas reducing technology.

Let me call on Senator Murkowski for any statement she would have, and then if Senator Barrasso had any statement, I would call on him too since he is the prime co-sponsor on the bill. But you go right ahead, Senator Murkowski.

SEN. LISA MURKOWSKI (R-AK): Thank you, Mr. Chairman. I want to thank the witnesses for joining us this afternoon. I think we all recognize the advancement of carbon sequestration technology is a very important task. And I think we all recognize the role that coal has played in the development of our country as we look to our energy sources, and the value that it holds not only in the past tense, but moving forward ahead.

We've authorized many programs at DOE to advance carbon sequestration technologies between FutureGen, the Clean Coal Power Initiative, and the regional partnerships. There is about $4.1 billion sitting at DOE waiting to be spend, but I think we all recognize that it's not always just about money.

Some times there is other matters to be addressed, and certainly the responsibility for carbon sequestration sites over the long-term is one of those issues that is on the list. The bill before us would place that responsibility squarely on the shoulders of the federal government for a number of demonstration projects.

This would be a bold decision, but it also raises a number of questions. And I would hope that some of those questions can be addressed before we markup this bill very supportive of carbon sequestration, and I believe that we must continue to aggressively advance the technology.

But I want to make sure that we go about that task in the most effective way and a responsible way so that the technology can continue to evolve as quickly as we would like it to. So I look forward to hearing from our witnesses on this very important subject today. Thank you.

SEN. BINGAMAN: Senator Barrasso, did you wish to make an opening statement?

SEN. JOHN BARRASSO (R-WY): Just briefly, Mr. Chairman. Thank you for allowing me to co-sponsor this important piece of legislation with you. Like you, I want to make sure that we can make American energy as clean as we can, as fast as we can, but do it in a way that doesn't increase costs for American families.

And it's -- I'm especially privileged to have with us to day, Representative Tom Lubnau. Tom and I served together in the Wyoming Legislature. Tom and I've held town meetings together in his home community in Gillette, Wyoming which is the coal capital of the world.

It's also Mike Enzi's -- Senator Enzi's hometown. Mike was the mayor of that community. And we know how important all the energy sources are, and coal is a very important part of the energy needs of this nation.

Tom has taken a significant leadership role, Mr. Chairman, in the Wyoming Legislature with our carbon sequestration legislation. It has been a bipartisan effort. The governor has been very involved. Tom has been involved and a significant commitment on the part of the entire state because we know how important this is for the energy security of our nation.

So thank you, Mr. Chairman, and welcome to Representative Lubnau.

SEN. BINGAMAN: Well, thank you again for co-sponsoring this bill. With this let me introduce this first panel.

Dr. Victor Der is the acting assistant secretary in the office of fossil energy in the Department of Energy. Thank you very much for being here.

Dr. Kit Batten is science advisor with the office of the deputy secretary in the Department of Interior. Thank you for being here. And as Senator Barrasso indicated, Representative Tom Lubnau, Thomas Lubnau is a state representative from Wyoming with -- from House District 31 in Gillette, Wyoming. So, thank you all for being here.

If each of you could take five or six minutes and give us your views on this legislation, and the pros and cons, and suggested changes, we would appreciate it.

Dr. Der?

MR. DER: Thank you, Mr. Chairman, and members of the committee. I appreciate this opportunity to discuss the Department of Energy's research efforts in carbon capture and storage, and hope that this information will be helpful to the committee as you consider ways to address liability issues associated with CCS.

Our fossil fuel resources, and specifically coal, represents a tremendous and strategic national asset. And based upon current rates of consumption, the United States probably has sufficient coal to meet its needs for the next century.

Making use of this domestic asset in an environmentally responsible manner will help the United States to meet its energy requirements, minimize environmental impacts, positively contribute to the national security, and complete -- and compete in the global marketplace. Our focus must be therefore, to develop deployable advanced technologies necessary to achieve near-zero emissions from coal use, including CCS.

The department remains a leader in the development of advanced technologies that have helped to reduce pollution emissions, and have increased power plant efficiencies. In fact, nearly 75 percent of the coal powered plants in the U.S. employs technologies with roots in the DOE's program for advance coal.

These technological successes coupled with substantial funding from the Recovery Act in our FY 2010 budget request will help us accelerate the advances and innovations needed to meet the challenges of CO2 reduction. To accomplish this goal, our advance coal program is focused on three important areas.

Technologies for affordable CO2 capture, establishing a scientific and technical basis for safe and effective storage of CO2, and substantially improving the efficiency and reliability of fossil energy systems. All three of these areas are important as we work to make CCS technologies deployable and cost-effective.

We have a good start in this direction. Years of research and demonstration experience have resulted in new concepts, including the conversion of coal into cleaner, residual gases that can be used to generate power or produce fuels.

Additionally, our research continues to explore emerging approaches to clean power generation that hold great promise for integration with coal-based or combined coal and biomass energy plants with CCS.

To that end, we are working on CCS enabling and transformational technologies, including advanced gasification combined cycle, advanced hydrogen turbines, advanced materials for ultra high efficiency plants, supersonic compression, and revolutionary concepts for CO2 capture.

With regard to storage, we continue to implement large scale CCS demonstration efforts under the sequestration partnerships and the Clean Coal Power Initiative programs. For instance, DOE helped fund the development of the nation's first large scale injection and storage site in Decatur, Illinois, which will hold 1 million metric tons of carbon.

We also continue to conduct analyses of the CO2 geological storage capability including a just released study of potential storage capability beneath federal lands. This study builds upon prior studies and data from the DOE and the U.S. geological survey. Early estimates from this study indicate that based on our current levels of CO2 emissions, these formations have the potential capacity to hold around 60 years worth of CO2.

So we are moving forward with valuable CCS R&D and analysis. But the success of our programs will ultimately be judged by the extent to which emerging cost-effective technologies are deployed, and more importantly, that we get it right.

Successful implementation of an economically viable national CCS system depends on having developed a national set of workable enabling policies. Such policies can help establish definitive standards, practices, and procedures, encourage technology development and investment and address liability issues related to carbon capture and storage.

And whatever structure is created must encompass the input of a broad range of stakeholders in the decision process. DOE has made great strides towards the goal of effective deployable CCS systems in a 2020 to 2025 timeframe. With continued leadership and support from the administration and the Congress, the department can move forward with development of new technologies and policies to meet the requirements of a safe, secure, and clean energy future.

Again, Mr. Chairman, thank you for the opportunity to testify here today, and with that I welcome any questions the committee may have. Thank you.

SEN. BINGAMAN: Thank you very much, Dr. Der.

Dr. Batten, go right ahead.

MS. BATTEN: Thank you, Mr. Chairman, members of the committee. Thank you for the opportunity to testify for the Department of the Interior on S. 1013. I will also discuss the department's forthcoming report on a framework for geological carbon sequestration on public lands.

I am Kit Batten, science advisor in the Office of the Deputy Secretary of the Interior. This position was created at the beginning of this administration because Secretary Salazar strongly feels that our future, both as a department and a nation, is inextricably linked to our understanding, through science, of the world around us.

I ask that my entire testimony be included in the record. And I -- excuse me -- I'm accompanied today, by Tim Spisak of the Bureau of Land Management, who will be glad to answer any questions related to the draft report.

The challenges of addressing CO2 accumulation in the atmosphere are significant. S. 1013 calls for the secretary of Energy to carry out a program to demonstrate the commercial application of integrated systems for long-term geological CO2 storage.

The legislation addresses key issues such as long-term liability, monitoring, and stewardship. The Department of the Interior supports the goals of S. 1013, and we look forward to working together to resolve legal and policy questions as we learn more about the technologies and geologic information.

The department supports the need for a large-scale carbon storage program and the need for liability treatments. The department also supports the requirement of science-based monitoring and verification of the injected CO2 throughout the life of a project to beyond the closure phase.

Drawing upon its long history with injecting CO2 into geologic formations, the department could offer a significant value to these efforts. For example, enhanced oil recovery taking place on lands managed by the Bureau of Land Management is a CO2 injection technique to allow recovery of energy resources from older oil and gas fields.

This technique provides valuable data and information that will facilitate future efforts to effectively capture and sequester CO2 in geologic formations. The BLM's existing administrative and regulatory framework will help facilitate future carbon sequestration demonstration projects and potentially, leasing.

In addition to experience in administering a large-scale mineral leasing program, the BLM has the realty experience for issuing rights- of-way that could help serve the needs for CO2 pipelines on public lands. The U.S. geological survey also plays an important role in recommending geologic criteria that could be incorporated into a set of best practices for geologic site selection for sequestering CO2.

The USGS has released a new assessment methodology for evaluation of carbon storage, which helps to identify the best places to use geologic CO2 sequestration. The secretary of the Interior will be submitting a report to Congress containing a recommended framework for geological sequestration on public lands in the near future.

The department, in coordination with BLM, USGS, EPA, and DOE, examined criteria for identifying candidate geological sequestration sites. This draft report describes federal liability issues related to the release of CO2 underground.

A few key findings include, at this early stage in the development of CO2 storage technologies, many unknown factors; it may impact the development of a regulatory framework. Carbon sequestration may conflict with other land uses such as oil and gas, or geothermal fields, or with drinking water.

The framework must recognize the long-term liability of sequestering CO2, and the required commitment for stewardship of facilities over an extended period of time. Geological carbon sequestration on split state lands presents other complications due to ownership issues of pore space, limitations may need to be placed on surface and subsurface uses to ensure integrity of storage.

Addressing the challenge of reducing atmospheric CO2 and understanding the effect of global climate change will be a lengthy and complex challenge. The department stands ready to assist Congress as it examines these challenges and opportunities.

Thank you the opportunity to testify today, and I will be happy to answer any questions. Thank you.

SEN. BINGAMAN: Thank you very much.

Representative Lubnau, go right ahead.

REP. LUBNAU: Thank you, Mr. Chairman, members of the committee, and to my old friend, Senator Barrasso, who was often times a co- sponsor of bills with me in the Wyoming Legislature. It's a pleasure to work with you again.

I bring to you greetings from the state of Wyoming where we applaud this effort. We have had a bipartisan effort for about two years working on this. Wyoming quietly and without incidents supplies about 10 percent of the nation's total energy. Wyoming supplies annually about 10.01 quadrillion BTUs of energy to the United States.

To put that in perspective, that's more than Saudi Arabia, Venezuela, Nigeria, and Iraq combined supply to the United States. Primarily, those resources are coal resources, but they are very, very important to the state of Wyoming.

Wyoming has a tradition and a history of trying to be ahead of the curve and doing things the right way. An example, it wasn't too long ago that one of my predecessors was here testifying about Wyoming's Mine Reclamation Act, which ultimately served as the pattern for the Federal Surface Mine Reclamation Act, SMCRA.

For the past two years, we've been working to develop the legal infrastructure to make geologic sequestration possible. And frankly, we fought some really difficult political battles. But in the end, I think we've got a legislative product upon which the state of Wyoming can be proud.

And I'd like to share some of our political experience so that the United States doesn't have to travel the same dead-end roads that we traveled to get here to where we are now. Wyoming has established a comprehensive legal framework for carbon sequestration.

The first question we answered was who owns the right. And in Wyoming, on free land we adopted the American rule, which is the majority rule that says that the pore space is owned by the surface owner. And our philosophy in creating the legislation was, as we all know, property rights are a bundle of sticks that everybody left the legislative session with the same bundle of sticks that they came in to the legislative session with.

So that there wasn't a property grab going on, because when you have the property grab, you create a lot of political opposition. And so that was an important goal. We confirmed that the mineral estate is dominant over the servient surface estate and the pore space estate.

We left split estate issues to a matter of contract between the parties, because we thought that people could deal with their own property rights better than government officials sitting in a legislative chamber in Cheyenne. We established a comprehensive regulatory and permitting process so that those questions were answered.

We established liability with the injector so that that cost shifted to the ultimate consumer. And we set up a unitization process to protect correlative rights and to allow a process to bring in recalcitrant folks who wanted to stop the development.

In looking at this bill, I'm impressed. And I had to think long and hard about things that I might do differently. This bill encourages development. It addresses one of the great barriers to deployment because if we don't have a structure in place and we ultimately impose carbon caps, one of two things is going to happen because we are so dependent on coal.

Either the carbon caps are going to fail or we're going to lose the source of about 50 percent of our energy, because if you look at the timeframes for deployment of the other energy sources, it just doesn't happen.

So two things need to happen for carbon sequestration to be developed, we need to define ownership of the pore space under federal lands because the states can't do that. And we need to set for some sort of process for liability. Those things this legislation does. What I would do differently with this bill?

I'd more clearly define the process. When does the identification commitment occur? I can't tell from reading this legislation when that happens. I think that you need to decide, as a policy matter, whether you define enhanced oil recovery in the process or out of the process.

Right now there is a process in Wyoming ongoing currently, where 40 million tons of carbon dioxide has been injected under the ground, in -- at this famous Teapot Dome oil field. I demand more specifics on site characterization because nobody has ever done this before, and we only have one chance to do it right.

I'd implement a process for removing the inept or unscrupulous operator. I don't see that in the legislation. And if your commitment happens at the beginning of the project, you've got a long period of time where you are married to that operation, I think, under this legislation.

I'd proceed prudently and carefully to allow generational advancement. And I wouldn't nationalize the pore space or aquifers because I think that buys litigation, changes the forum, and decreases the motivation for people to proceed with these projects.

Thank you, and I stand for any questions.

SEN. BINGAMAN: Well, thank you all very much for your testimony. And let me particularly thank you Representative Lubnau. You've, obviously, spent a great deal of time on this subject, and we can learn from your insights.

Dr. Batten, let me ask you. One of the things we did in the 2007 bill we passed was to request policy recommendations be provided to the Congress for carbon capture and storage development on public lands. As far as I can tell, there is -- there are no policy recommendations in the report that you've done.

I was wondering, is there any prospect that we could receive some recommendations of that sort prior to marking up this bill.

MS. BATTEN: Thank you, Mr. Chairman. We are working on a report that the first draft of which was prepared in December 2008. However, because of the change in administration, it's been held up a bit. It's currently under review, and we are expecting to issue it to you very soon.

The report asserts that the BLM has adequate statutory and regulatory authority to issue leases and permits for geologic carbon sequestration activities on public lands with the possible exception of the establishment of trust funds to manage the long-term post closure phase of sequestration sites.

The report recommends that research be undertaken in a number of areas to address the many unknowns related to carbon dioxide sequestration so that proper mitigating measures to protect the environment can be included in the land use authorization. It discusses existing law and the authority under that law that provides for potential CO2 policy development, but it also identifies gaps.

So we look forward to sharing that final report with you.

SEN. BINGAMAN: Okay. Let me ask, if after looking at this proposed legislation that we've introduced, the S. 1013, you believe that the role of the Department of Interior and -- with regard to carbon capture and storage on public lands is adequately defined in the bill in order for us to proceed with this liability program that we've proposed, or do you think we need to make some changes? Have you been able to reach a conclusion on that?

MS. BATTEN: We're still reviewing S. 1013 at the Department of the Interior. So what I'd like to do is to get back to you soon with some greater clarification on that question.

SEN. BINGAMAN: That would be great if you could do that.

MS. BATTEN: Absolutely.

SEN. BINGAMAN: Also on page 8 of the report that you've referred to, this Section 714 report, it stated that many authorities currently exist to address CCS needs such as for managing pipelines, roads, and infrastructure, and various other issues.

It goes on to state that existing authorities are not likely to address all of the unique issues that carbon sequestration presents. Could you also get back to us and elaborate a bit more on any gaps that you think exist in current authority that we ought to try to fill?

MS. BATTEN: Absolutely, Senator, thank you.

SEN. BINGAMAN: Okay.

Mr. Lubnau, Representative Lubnau, it's clear, of course, that Wyoming is the national leader in this area of developing CCS law that enables this technology to continue to progress to full-scale deployment. Let me ask about unitization.

I don't think you discussed that in your oral testimony, but I gather you've got provision in your law that makes an 80-20 split on unitization. Can you describe that, and how you arrived at that, and what opposition you encountered to the unitization provisions that you put in your law?

REP. LUBNAU: Certainly. Thank you, Mr. Chairman. We do have an 80-20 unitization bill. Surprisingly, it went through with little opposition. I think there were, out of 90 members of the Wyoming Legislature, two no votes in both Houses. Here's why. There are two options for brining in recalcitrant owners. There's unitization, and then there is eminent domain. And I challenge anybody, right now, to determine what the value of pore space two miles under the surface is, right?

I mean, you just can't make that determination. It could either be a lot. It could be nothing depending on what the market bears. And so for eminent domain purposes, you get one payment upfront, and as a surface owner, you don't have a property right anymore.

And so what the unitization bill does, did was it changed that so that you are entitled to a portion of the economic benefits as determined by the Wyoming Oil and Gas Commission, and by the market over the life of the project. So instead of losing the property right forever, there's payment over the life of the project.

Additionally, if there is the unscrupulous or inept operator, you can petition in front of the Oil and Gas Commission, and have some say in the way that the unit is operated. So for land owners, that was a more palatable method of including involuntarily folks than the eminent domain was, because you lose absolute control.

For the mineral industry, they were just happy to have a process where none existed. And if you look at Wyoming's constitution, there's enumerated a series of things for which you can condemn private property, and the only thing that comes close is sanitary purposes, roads, mines, but there is nothing in Wyoming.

So it's unconstitutional in Wyoming. So we were faced with a choice of nothing or unitization, and that's where the unitization came from. As we've thought through it, we think that that's a better use of our scarce asset and scarce resource because we can allocate, equitably control through a unitization process.

I think we've tried to parallel -- I mean, starting a new industry entirely from scratch and using your imagination is hard. We've tried to use as many parallels to oil and gas as we can, because that's something we know. And we have the case law and the infrastructure legally there.

So, I think it also provides an option to the federal government as well to set up a federal unitization statute, not unlike the oil and gas federal unitization statutes we have as well.

SEN. BINGAMAN: Thank you very much.

Senator Murkowski?

SEN. MURKOWSKI: Thank you, Mr. Chairman. And I apologize that I had to step out and miss the oral testimony of you, Dr. Der and Dr. Batten. Let me ask a question about just who, kind of, assumes ownership and liability for the injected CO2 in the -- and competing for the FutureGen site selection.

Both the state of Illinois and the state of Texas passed state laws to assume that liability and to assume ownership of the injected CO2. What's the administration's opinion on this, and representative I'll also ask you -- your opinion on the role of the states in terms of the long-term stewardship of the CCS sites as compared to the federal role that we see outlined in the legislation that's been drafted.

And I'll ask each of you, Dr. Batten, you want to go first. Thank you.

MS. BATTEN: Sure. Thank you, Senator.

I don't believe -- we have done a lot of raising of the issues of the various components of the liability question that we need to consider, both short-term liability, long-term liability looking at the various -- CO2 is not necessarily always the same thing. We need to be looking at CO2 as a commodity, as a resource, as a waste product, as a pollutant, et cetera. So there are many different ways to consider CO2.

And so when coming up with liability recommendations, we need to consider all of those different definitions in terms of exactly who should assume liability. We have not come out with a position on that yet. But we're looking forward to working with you on providing as much information as we can in terms of the department's role in this and -- and moving forward.

SEN. MURKOWSKI: Dr. Der, anything further from the administration prospective?

MR. DER: I want to echo what Dr. Batten has said. I think, it -- currently the administration would probably go through some interagency reviews on the processes and -- to try to address those various concerns and natures of the CO2 relative to liability on the federal part.

SEN. MURKOWSKI: What about your opinion on state versus federal ownership?

REP. LUBNAU: Thank you, Senator.

Our state has taken a position, actually passed a bill that says if you inject that you own it. So the injector owns it. And here is why. If the injector owns the liability, they pass it through their charges to the power plant, who passes it through their charges in the rate-base to the ultimate consumer of the electricity.

And it didn't make sense to us for the 550,000 people of the state of Wyoming who are not the ultimate consumers of the power to pay for those liabilities and assume those liabilities for our children and grand-children. So ultimately, I think that that liability should be best borne by the consumer of the power, so that we don't build in an artificial economic incentive one way or another.

I think that this bill is structured much the same way. Although backed with the full faith and credit of the United States. Because the United States provides indemnity with a charge back to the injector the present value of those liability premiums, which gets passed on through the rate base to the consumer so that the consumer pays. And I think that that's appropriately where it should be.

SEN. MURKOWSKI: Dr. Der, the department has struggled with calculating the risk profile of loan guarantees for clean energy projects. Potential liabilities that are associated with carbon sequestration are probably even less certain. Is the department comfortable with calculating, maybe, "comfortable" is not the best word, but in terms of calculating the fees that will be necessary to cover the potential liabilities required by this, have you given any thought about how you even begin that task of calculating that liability?

MR. DER: To be honest with you, I don't think we have because the --

SEN. MURKOWSKI: How difficult do you imagine it would be?

MR. DER: I think it would be very difficult because of the assessment of the risk and how you value that risk. And when we talk about bringing things to present value, it takes, I think, in my opinion, some very sophisticated economic models and also risk models associated with -- this is a long-term storage liability.

That being said, I think there are probably some models that we can draw upon to see what has been done in the past, not only in the United States, but overseas, other models that have been put into place for long-term liability. And see how those yielded the results. The worst thing we want to do is to create a situation of unintended consequences, both from the government's part and on the public's part.

SEN. MURKOWSKI: In the 2007 energy bill, there were seven CCS demonstration projects. And then in this legislation, it provides for an additional 10 more. So you've got, well, my notes here say 19 demonstration projects. I guess that also includes FutureGen, represents another, and then CCPI presumably, at least and others.

So we're talking about 19 demonstration projects. Is this too -- is this about the right numbers? Is it too high, or is it too low in terms of the number of demonstration projects that will be necessary to prove out the viability of carbon capture and sequestration?

MR. DER: I think, going back to your first quote, we have seven partnerships, broadly, but there are nine projects as a part of that partnership, and these 10. I think that's how you got your number 19.

SEN. MURKOWSKI: Yeah.

MR. DER: It actually depends on the nature of the integration of the source and the sink. We have different geological formations. There are different types of sources. And what we really need to do is, sit down and look at the matrix of what is covered and what needs to be covered so that there is confidence in these various sources and sinks to move forward, to say that there are commonalities that we can draw upon from among the projects. But there is some specific aspects of each project that we need to be able to characterize. So an addition of 10, I think, is at least a minimum that we would need to take a look at.

SEN. MURKOWSKI: An additional 10 on top of the 19.

MR. DER: On top of what we have, yes.

SEN. MURKOWSKI: Now, wait I'm not clear -- (cross talk) -- an additional 10 as indicated by this bill?

MR. DER: As indicated by this bill, an additional 10 would be very helpful in trying to increase the knowledge base.

SEN. MURKOWSKI: All right thank you, Mr. Chairman.

SEN. BINGAMAN: Thank you.

Senator Dorgan.

SEN. BYRON L. DORGAN (D-ND): Mr. Chairman, I have been at an appropriations markup on the omnibus. So I've not been here for the testimony but I -- this is a really important area. And I appreciate the hearing and I will not ask questions because I've not heard the witness' testimony. Thank you very much.

SEN. BINGAMAN: Senator Barrasso.

SEN. BARRASSO: Thank you, Mr. Chairman.

Representative Lubnau, a couple of things about pore space ownership. You mentioned in your testimony the need for determination of pore space ownership under federal surface, federal minerals. You know, we come from a state where half of the surface area is owned by the federal government and two thirds of the minerals under the ground is owned by the federal government.

So where we have a state like Wyoming and a number of states where a significant amount of federal ownership of the land, what are the ramifications of leaving the federal pore space ownership unaddressed and how important is it that we make sure that we address this thing fully?

REP. LUBNAU: Thank you, Senator.

If you don't make the determination as to who owns the pore space under federal lands or around -- whether it's the surface owner or the mineral owner, these projects won't proceed. Because you can't make the determination -- you don't know who to ask. And you've got conflicting property rights. And a sixth of our state, we've got fee surface over federal minerals, so who do you ask? In Wyoming, we say, that the surface owner owns the pore space. We've adopted the American rule, which is generally the case law in the country.

And so Wyoming's law says that the pore space owner would be the surface owner.

If you make the determination here that the mineral owner owns it, then you've got a conflict of laws. Of course you have priority, but you can't know until you all make that determination one way or another. I'd urge you to adopt the American rule, number one, for consistency's stake. Number two, because it avoids grabbing sticks from one bundle and moving it to somebody else's bundle, and because under the law it makes the most sense.

A mineral owner should own the right to extract minerals on that much of the surface and subsurface as is necessary to extract minerals. I don't think in the definition of a mineral right that through any kind of constructed or other than to recover oil and gas through other kind of minerals, you have the right to inject anything because you are putting something back in instead of taking something out. And that's clearly under the case law, a surface owner right, I think.

SEN. BARRASSO: So based on what you are saying it's very critical that we make sure that we must address pore space ownership federal land?

MR. LUBNAU: Yes, senator.

SEN. BARRASSO: And then for the states, 11 or so that have more than 40 percent owned by the federal government, what are the implications if we don't adequately go ahead and address that ownership of the pore space in those states?

MR. LUBNAU: Senator, I don't think that these projects will go forward. Because just the sheer scale -- I mean what we are talking about here is millions and -- I mean, right now it is 1 million tons of carbon dioxide. But if these projects go forward and Wyoming supplies 400 million tons of coal a year. If you do the chemical -- if you do the chemistry, that turns into about 800 million tones of carbon dioxide a year.

So you compress that down to a liquid, you stick it down into the formation, there are some problems with the formation and it pressurizes the formation. So the latest philosophy we have in Wyoming is for every gallon of compressed carbon dioxide you put in, you pull out a gallon of saline, purify it, put the non-disposable stuff back down into the formation it came from, and sell the water so that you don't over pressurize the formation.

Those are a lot of philosophies that you have to work with to get this done. But if you don't have a federal partnership, you can't do it on fee land alone and without the determination of ownership it doesn't get done.

SEN. BARRASSO: Should we then go to that question of the water, you said for every gallon of the liquid carbon dioxide you are putting down you are getting a gallon of water, purify it, get rid of the saline, and then you have the water, and I think you said, sell it. Talk about a little bit about the proposals for federal ownership of the deep saline aquifers, and what are your thoughts on that?

MR. LUBNAU: A couple of things. Number one, I think we're too far down the road for the government to do it without it being a taking. Those saline aquifers, for many years have been used -- we've been doing carbon sequestration for many years just not at scale. We call it either Enhanced Oil Recovery or Acid Gas Injection depending on where you put it and if it's into the deep saline aquifer it is Acid Gas Injection.

And we do it under class two, and I think class one, UIC programs. So -- but it's not at scale. So, there is a valuable asset enhancement for a long time. Now that the pore space ownership has been determined under fee land there are people who are creating leases and leasing their pore space already.

So there is a value there, so that's a take in. The second thing I would say about nationalizing the aquifers is that those aquifers are valuable, particularly in the West, where we are short of water and as the technology and energy and demand for water becomes greater and greater and greater, those saline aquifers become more and more valuable to those states that already have that water. And taking that water, I think, is bad public policy.

And then the last thing I would say is that if you nationalized the aquifer, you nationalize the pore space, because they are the same thing, essentially. So you discourage development, even though the federal government would say that they own the pore space, the surface owner who doesn't have any say in the game, and doesn't have any income motivation to develop the pore space, does everything in their power to stop that development, prohibit access to surface monitoring facilities, litigates for years and years and years to keep the project out.

There is a whole series of things that I think nationalization of the aquifers is just generally bad public policy.

SEN. BARRASSO: Thank you, Representative Lubnau.

And thank you, Mr. Chairman.

SEN. BINGAMAN: Thank you very much.

Senator Corker.

SEN. BOB CORKER (R-TN): Thank you, Mr. Chairman.

And another great hearing, and I want to thank the witnesses.

I realize that we've been done using carbon for Enhanced Oil Recovery for years and many other things. And I know that sometimes I use the term, "When donkeys fly" I don't mean that using CO2 -- sequestering CO2 is not something that can't be done. I realize we are doing that today and have for years to benefit oil recovery and in other ways.

I guess what I have trouble imagining, and I could say why Wyoming is the center of this activity today, we just had a transmission siting hearing talking about a bill. And so, as I think about us trying to capture and sequester carbon -- our carbon, that's generated through coal produced energy or any other way, and I think about the myriad of pipelines throughout our country, the right of ways, the pumps, that I understand need to exist at least every 100 miles and -- or maybe more.

Is this a reality to think about, on a commercial scale, our country looking at pumping CO2 throughout our country using it where we can for oil recovery, in other cases just sequestering it and getting rid of it, is this a when-donkeys-fly type of thing, or is this reality, Representative Lubnau, you seem to me the most knowledgeable person here regarding that.

REP. LUBNAU: Senator, I'll be honest that's a tough question for me to answer. I come to you from the state that produces -- I come to you from the county that produces the most carbon of any county anywhere in the world. But, and that's not true. My county isn't the largest emitter of carbon in the state of Wyoming, Yellowstone Park is.

SEN. CORKER: During certain seasons.

REP. LUBNAU: And --

SEN. CORKER: At some seasons it is not, at some seasons, yes, but go ahead, yeah. Can you imagine these pipelines running throughout our country and that is pumping carbon throughout the country on a scale that makes any sense. Are we just all doing this to make coal, to those who oppose coal, seem like something that's doable under a cap-and-trade scheme and will make sense -- just tell me, I mean, are we smoking something is this --

(Laughter.)

REP. LUBNAU: Senator, we can do it. It will be expensive. I think that if you cap carbon it has to be a reality because we don't have enough energy sources to do it otherwise. Let me give you an example, wind has been touted in my part of the country as a panacea. And we've got thousands and thousands of acres where sagebrush didn't grow because the wind blows so hard.

It's also prime sage grouse habitat, sage grouse are in danger -- well, I don't have -- whether there -- there is no endangerment finding, but it's a big debate. And it shuts down the oil and gas industry in the spring when the sage grouse lek. Sage grouse are notoriously stupid animals.

They are just -- that's the way they are.

So they are preprogrammed that if there is something seven or ten feet tall standing in the middle of the prairie that's a raptor perch and they don't lek anywhere near it. You put 100,000 acres of wind towers out in the middle of Wyoming prairie you have now put 100,000 acres of what the sage grouse perceive to be raptor perches. And so they don't lek.

So, now all of the sudden what's touted as a panacea becomes an endangered species hazard in the state of Wyoming. And so you've got a conflict between the Endangered Species Act and the clean energy that you want. So do we exempt wind from the Endangered Species Act or that doesn't make much sense.

So things that have been touted as a panacea have unintended consequences. What's does that lead me to believe? Will that lead me to believe we continue that we need to burn coal? If we don't burn coal, we just shut off about 50 percent of the nation's energy supply. Primarily, not on the West Coast and not on the East Coast but in the Rocky Mountain West, and the industrial Midwest, those are the people that lose their power.

So if you put caps on carbon, we have to have something like this or we'd just cripple our economy. One of two things is going to happen. Either the carbon caps aren't going work or the economy is going to fall apart, and I don't see any other option.

SEN. CORKER: Well, I hope this is a solution but I think what I hear you saying is that in the interim since coal is an important part of our energy production we need to at least make believe that it can happen.

(Laughter.)

So is that until we figure out some way. I mean -- again, I just have -- I don't know who is going to own these pipelines.

I don't know who is going to pay for these pipelines. I don't who is going to monitor these pipelines. But I have this vision of tremendous amounts of pipelines running throughout from every urban area of the country and every part of the country into these caverns that we have all these legal issues.

And I hope there is a solution, because I'm one of those who understands the importance of coal. So back to DOE, I actually sense that a better solution for us is going to be figuring out something to do with CO2 molecules that is beneficial. And I think all these other stuff, candidly is, a nice pastime.

But I think that scientists -- our better solution is for scientists to find something beneficial to do with CO2 by breaking it down and turning into something else. And I am just wondering what DOE's thoughts are in that regard. And whether we feel like we're investing enough in research to sort of circumvent this thing that we are talking about that has lots of problems.

MR. DER: I think we have looked at various ideas and from basic sciences in the past and continue to do that to look at ways to break up the carbon molecules. The issue there is that from a chemical bonding, the energy it takes to remove that is fairly high. There may be some revolutionary technologies out there that we don't currently know about that could be on the horizon that'll let us to do that.

There are ideas about mineral carbonization and using the CO2 to regenerate products from. But in the end when you look at the volume of the CO2 that's generated from coal plants, fossil plants and many other type of industrial processes it is a large quantity. And I don't see us being able to subtract this carbon storage issue out of the equation.

I could be wrong but if I am wrong I'm -- I would be glad to be wrong if there was a way to make use of that carbon in such a way that it would be of a beneficial use. And we do support research in those areas and from the science basis and from the technology basis.

SEN. CORKER: But you do see solving it because of the mass of CO2 that's going to be generated and this being a problem here you do us solving it by piping carbon throughout our country and putting it in the ground.

MR. DER: I think I would rather defer to some of the industry folks that would be possibly coming up after here. But I think it is a feasible thing, for example, in terms of gas pipeline transmission, we have over 300,000 miles of transmission of gas pipelines today. And it seems to be able to be dealt with in terms of right of ways and the like, it will be a challenge.

It depends on how the transportation network is designed relative to where the source and the sink goes to. Whether or not it's a local prospect of a short distance of the transport of the CO2 to a storage site or whether or not there'd be large common areas where we feed CO2 into a common pipeline. And those things need to be looked at and I probably would rather defer it to industry, and see what those best solutions might be.

SEN. BINGAMAN: Let me ask if Senator Barrasso or Senator Murkowski have additional questions.

Senator Barrasso.

SEN. BARRASSO: Just one Mr. Chairman, if I could maybe to Representative Lubnau. The State of Wyoming and General Electric are engaged in a project, they're building $100-million plant in Wyoming. And isn't the idea to have a plant right at the location, where you do sequester the carbon dioxide without having to go with all these hundreds of miles of pipeline?

I mean I thought that was the principle behind this is to try to put the facility where the coal is made into electricity at the same site where the carbon is sequestered. I think North Dakota has some similar intentions. And then ship the electricity with the transmission lines that we are working on through this legislation.

REP. LUBNAU: Senator, I thought that was the philosophy too. The state of Wyoming has just announced that that plant is going to be in Cheyenne. The prime geologic place in Wyoming is the Rock Springs uplift which is 4,000 square kilometers bounded on four sides. Prediction is that there's 465 years worth of carbon sequestration in that uplift.

There's a series -- as you know, there's the Jim Bridger Power Plant right in the middle there. That is the initial plan is just to locate them where there's point sources. Right now carbon dioxide is a valuable commodity. It's valuable for enhanced oil recovery. If we can get the carbon dioxide to the oil fields it's a valuable commodity.

The problem is that the sheer volumes of carbon dioxide mean that pretty soon that market goes away and then it becomes a waste product. So initially, it's economical just to put them -- at the power plants in the Powder River Basin so that you can rejuvenate the Powder River Basin oil fields.

And they say that you can get about as much oil out of the oil field with the enhanced oil recovery techniques as you got during the first life of the oil fields. So out of Teapot Dome and the Salt Creek oil field they think another 200 million barrels of oil by re- injecting the carbon dioxide that they're getting from the Exxon plant in Western Wyoming.

SEN. BARRASSO: Thank you, Mr. Chairman, thank you.

SEN. BINGAMAN: I thank you. I was given a note here. Allison indicated that in this American Recovery Act we put $100 million into a beneficial reuse CO2 at the Department of Energy. That's in response to Senator Corker's concern about whether we are doing research in this. I do think we're trying to look at all options. And I think that's a wise course.

This has been very useful testimony. Thank you all for being here. We have another excellent panel which I would call forward at this point.

Let me introduce our additional panel. It's Mr. John Tombari, who is vice president with Schlumberger Carbon Services in Houston; Mr. Scott Anderson is senior policy adviser with Environmental Defense in Austin, Texas; Mr. Karl Moor who is vice president and associate counsel with the Southern Company in Atlanta; and Ms. Chiara Trabucchi, who is the principal with Industrial Economics in Cambridge, Massachusetts.

Thank you all very much for being here. Again, I apologize for the somewhat delayed hearing. But I think we're still in good time.

Mr. Tombari, if you could take five or six minutes and give us a summary of the main points. And then we'll just go across the panel and hear from each of you and then we'll have some questions. Go right ahead.

MR. TOMBARI: Mr. Chairman, members of the committee, thank you for having me here today. I'm here to tell you that the technology for the safe storage of CO2 is ready. And there's an industry waiting to develop. And we need to start this now for the sake of future generations. Now, I've been with Schlumberger Carbon -- Schlumberger for the past 28 years. I've spent the last five years dedicating my life to CO2 storage.

Schlumberger has been around for 80 years. We've consistently spent in research. Last year we spent more than $800 million in research. We understand the subsurface of the earth. We understand its characteristics, the layers, the compartments. We understand how fluids can move in and out of the earth. Based on our experience, the technology we've developed, and the projects we've participated in, we're ready to start a business to own and operate CO2 storage sites in saline formations.

Now let me be clear, saline formations are actually rocks that exist miles underneath the earth. They are filled with salt water and they are perfect places to put carbon dioxide for safe, long-term storage. Now, before we move into this business and we do move cautiously because it's not something easy to do. It's difficult for us and it pushes the envelope of our technology.

So there's four things that we need to get started. The first is this technology won't just work anywhere. So site selection is critical. We have ourselves a very strict criteria for the types of saline formations where we would be willing to do this. So that's number one, site selection.

Number two, obviously, and it's been said before, is we need to be able to get the rights to the pore space, where the CO2 will eventually evolve. We're hopeful that those issues will be resolved.

Number three, is we believe there needs to be a very strong regulatory framework developed. We would be unwilling to participate in an industry that might not be properly regulated that might involve bad practices.

We support, and we're encouraged and we've been involved in the EPA's class VI, UIC regulatory work and we hope that proceeds. Lastly, and what this Act is here to address is the notion of long- term stewardship.

So, we believe once again if a site is selected properly and if good characterization work is done early with good technology and before injection starts that the operational period of injection, the 10 (years), 20 (years), 30 years when CO2 is injected this operational period is manageable. And in fact, we're willing to take the responsibility during this period of time and manage the challenges that will occur.

Now, once you stop injecting the CO2, the CO2 will continue to move in the formation. But if you have selected your site well and if you've used good practices it will come to equilibrium in a predictable time, in a predictable place. And so, we still would be willing to take responsibility through that time period.

Now, once the CO2 comes into equilibrium, however, in order for an industry to properly form, the public will demand and they should demand that an entity like the federal government takes on the hundreds or perhaps thousands of years of long-term stewardship of this CO2. That's what this Act puts forward and it gives encouragement and hope and incentive for companies who would use good practices like Schlumberger to actually get into this business. Thank you.

SEN. BINGAMAN: Thank you very much.

Mr. Moor.

MR. MOOR: Senator Bingaman, good to see you sir, Senator Corker. I am Karl Moor with the Southern Company. We have 42,000 megawatts of generating capacity about half of that is coal fired. So we're amongst the hopeful. We've found over time that the possibility of sequestering carbon is something that we had an obligation to study and pursue in every way possible.

We were very encouraged by the introduction of 1013. We're here today to endorse the bill because we view it as an important first step in the road to making sequestration a real possibility in the lives, our lives, our children's lives, and our grandchildren's lives. John is a very hard act to follow.

When you think about Schlumberger, the type of company they are, their worldwide reputation. They helped give all of us confidence that with this kind of technological sophistication, this type of commitment, and these kind of resources that we can create an environment under which sequestration can be made to work. It's a daunting task.

I was impressed by our state representative of Wyoming, a great and articulate spokesman for a view that I think all of us hold, which is 50 percent of the nation's energy derives from this resource, our most valuable domestic resource of energy. Long-term obligation to make sure that it's available. It's been the secret to economic growth in the Southeast in the Tennessee Valley.

It is a driving force in our economy both through rail -- the infrastructure in and around power plants all that comes with it. It is the thought that we would abandon this resource, leave it unused, leave it untapped, deny it to our children and our grandchildren when we in turn had already received the benefit of it which seem to be -- to be a terrible waste of a potential that America holds.

And so, when we've looked at this issue, we've tried to take the view that we've had these benefits. What do we do to ensure that our children enjoy these benefits as well? And so today, I would tell you that the Southern Company has taken this responsibility very seriously by pursuing really four things, we've -- really five things. Let me characterize the four first on the technology side.

There are four things that we decided that we had to do. First of all, we had to do large-scale sequestration projects to figure out if we knew how to do this so we can employ this technology. So we've been pursuing this. We also had to learn whether or not we could do this from conventional coal-fired power plants. And so we have a number of projects underway under the sponsorship of DOE that we think will give us the experience to do that over time.

The other thing that -- we said that we need and we're working in partnership with DOE is an opportunity to work at the fundamental research basis to understand what the challenges will be not just in the next five years but in the next 50 years. And then finally, we thought on the large-scale we had an opportunity and a requirement really to bring IGCC into fruition.

And so just recently Mississippi Power Company, which is one of the operating companies of Southern Company has announced that we are going to attempt to build, if the Public Service Commissioner approves it, a 582-megawatt IGCC facility in Kemper County, Mississippi with a 50 percent carbon capture potential. The great news there is the happy coincidence between EOR and carbon capture is a good one for the Southeast.

And much like the story in Wyoming, we're hoping that we can enhance oil recovery even as we sequester carbon. From our experience and the experience that we've had from others we've concluded that risk management is at the very heart of this enterprise that we have to exercise great care because we are talking about an intergenerational creation of risk.

We've worked with Scott Anderson and others in the environmental community diligently to communicate the idea that because we take on our stewardship obligation very -- because we take that obligation very seriously we want to see this policy unfold in a way that creates the maximum opportunity for its success.

We've also over time concluded as -- and as been taught by the geologists in the industries in and around the oil and gas industry as well as through the oil field services that the declining risk curve is a big part of this. We would have embraced early in our thinking the work of Dr. Sally Benson of Stanford University who tells us that the tail is long but it narrows.

And so what we're hoping to do is, as with John and his company, take on early responsibility through a combination effect. We found over time that we can manage risk, slight risk with large negative consequences through products like insurance and mutualization. We believe those keep the private sector first and foremost in the place where they are managing the risk and managing the resources that allow you to deal with a small risk.

That being said you'd say, well, why didn't -- would you support 1013 and idea that the DOE should be involved in the indemnification process to take on a responsibility that private industry really should have? Our answer to that is straightforward. We are in an interesting moment in history. The demand for carbon capture and sequestration is great. The timeframe that we have to implement it is relatively short.

We find ourselves in a place where we need the experience frankly, of large-scale projects which we're committed to as well to teach us what we need to know about risk management, about the engineering, about the science using that and the possibility that these projects will be backward funded using risk mechanisms that you'll hear about from Chiara that we have the opportunity to combine all of the elements of both the research community, and to borrow a phrase from Chiara, "All three legs working together," the science and technology, the law and policy, and public policy as well as the engineering.

And if we do those things and we create an environment in which early running products -- projects like those that we have planned are given the chance to enjoy the umbrella the DOE could provide then there's a greater chance that carbon capturing sequestration will be deployed. That was why we were excited to see the bill, that's why we wanted to congratulate the chairman and all his cosponsors on the fine work done. It is a great product, and a wonderful start for an enterprise that, we like John, believe needs to begin tomorrow.

SEN. BINGAMAN: Thank you very much.

Mr. Anderson.

MR. ANDERSON: Yes. I'm Scot Anderson, Environmental Defense Fund. It's not very often that Environmental Defense Fund finds itself in agreement with Southern Company. But I'm almost tempted to just endorse his statement and pass the mike to Chiara, which I'm sure you guys would love me to do but I think I will stick to my text.

We appreciate the opportunity to be here. I wanted to begin by stressing, as others have said that as a technical matter, CCS is ready to begin deployment now. I'm not saying it's commercial but it's ready to begin deployment. All of the necessary technologies exist. What's missing are market drivers to cause companies to put those pieces together.

With experience costs will come down and project development more routine. We believe that cap-and-trade legislation can and should be the chief market driver but complementary measures such as you have here today are also important. We applaud Chairman Bingaman as well as the co-sponsors for introducing this legislation. We're pleased, for example, that the bill helps clarify the difference between two issues that are in fact separate but frequently confused.

The first issue is the need for a long-term site maintenance after sequestration projects are successfully closed. Your big policy questions on that issue are who should perform that function? How should you define that function? And how should you fund that function? So that's one issue. The second of these two issues that's frequently confused is the need for project developers to manage the risk of liability for damages that result from their activities.

It seems that your key policy questions here include the relative roles of government and the private sector risk management tools. And how the relationship between government and the private sector should change with time as the CCS industry matures.

The bill addresses both of these issues. It's a measured response to barriers faced by some early-mover projects at a time when private sector insurance options are not fully developed. The bill helps project developers manage risk, while guarding against so-called "moral hazard." In other words, the bill provides coverage for losses while creating what I would call underwriting standards. Provisions such as essential requirements for rigorous geologic characterization that will encourage project operators to operate responsibly and not cut corners.

In this regard and in other important respects detailed in my written statement the bill's approach to risk management is similar to the insurance model as well as other financial instruments that have evolved in the private sector. Moreover, by establishing a program similar to models that exist in the marketplace and by restricting the program to a limited number of early projects 1013 will encourage the development of market-based solutions to the emerging CCS industry's need to spread risk at a reasonable cost.

In the long run we believe a market-based solution should be our goal. Now, that model is healthier for taxpayers, as for people who might suffer damages, and for the industry itself than would be a system where firms routinely depend on the government to absolve them from their problems.

Unlike the enhanced oil recovery industry, unlike the gas storage business, and unlike the underground injection of hazardous waste business the CCS business, the geologic sequestration business has not had time to develop the kind of instruments, which make it possible for them to approach that business in the same way the -- these other industries do.

The EOR business, the gas storage business, the hazardous waste injection business, none of them have any special liability release and yet they have no problems attracting investment capital.

The only liability release they have is the expiration of statues of limitation. So just because someone is in an injection business of sending large volumes of CO2 into the underground area, it doesn't automatically follow, in our judgment that they need special reliability release in the long run; early project's different.

So as the industry matures, and needed risk management tools develop, we should evaluate what roles government and private industry should play and we should make use of the competitive market forces as much as possible.

We should also remember that liability rules grounded in common law and in statutes serve an important function in our society. These rules encourage people to act as their fellow citizens expect them to act. So we should tinker with them and -- only cautiously.

One other issue I would like to touch on is that the bill proposes to give money to states for training regulators. I think that is an extremely important part of the bill, we're glad to see that.

CCS regulation does raise a lot of novel issues that need to be approached in a sophisticated way and the state regulators could use that help. While this bill may not be the right vehicle, we would also encourage the Senate to consider giving additional appropriations to the states for their actual permitting and enforcement work as well.

The Groundwater Protection Council has estimated that in order for states to fully implement the pending CCS rule that EPA will require some tens of millions of dollars of additional financing that they don't have unless the federal government gives it to them.

So, thank you very much.

SEN. BINGAMAN: Thank you very much.

Ms. Trabucchi, thank you for being here.

MS. TRABUCCHI: Chairman Bingaman, members of the committee. Thank you for introducing Senate Bill 1013 and for the invitation to testify at today's hearing.

I'm a principal with Industrial Economic Incorporated located in Cambridge, Massachusetts. My expertise relevant to this matter is in financial assurance and long-term indemnity models.

My remarks today focus on the financial assurance and indemnification framework proposed by the bill and specifically on the assessments, collection, and use of these from CCS developers.

Firms seeking investment capital to finance business ventures, including CCS, must demonstrate the ability to assume and manage risks inherent to the venture. By doing so, the firm is able to assure investors, whether private or public, that the value of their investment will not erode, and in fact with time, will gain value.

In the case of CCS, the very long time horizon and the use of taxpayer dollars demands a financial assurance structure that blends the strengths of private and public risk sharing. To be effective, a financial assurance structure that implements a private/public risk sharing as proposed in the bill should achieve four clear goals. First, it should ensure funds are adequate, when needed. Second, it should ensure these funds are readily accessible, when needed.

Third, it should establish minimum standards for companies that choose to self-insure or for financial institutions managing funds or underwriting risk. And fourth, it should ensure continuity of financial assurances, when ownership of sites is transferred.

The long-term indemnity model proposed in Senate Bill 1013 is a notable step forward in achieving these goals, and appropriately limits indemnification to certain types of damages.

In my view, if the intent of Senate Bill 1013 is to establish a financial assurance framework that ensures sufficient resources are available to pay for long-term stewardship at the time ownership of the demonstration projects is transferred, then the following elements of the bill would benefit from additional clarification and should not be left to interpretation.

First, in the section addressing Collection of Fees and the use of Net Present Value Analysis, the amount of fees assessed and collected should be based on the Net Present Value of probable damages arising from each demonstration project.

Simply stated, the amount of money collected from each CCS developer should clearly correlate to the amount of money that may need to be paid in the future once ownership of their specific site is transferred.

The analytic tools exist to estimate dollar values for potential damages from CCS and are routinely used by experts in financial and natural resource economics. Second, this section also should require the design of an adjustable fee structure, whereby the CCS developer pays a risk-adjusted, site-specific fee that is reassessed as actual site-specific monitoring, measuring, and verification data become available.

Third, in the section addressing Use of Fees, consistent with basing fees on a Net Present Value analysis, the fees collected should not be deposited in the Treasury and credited to miscellaneous receipts.

Rather, the fee should be set aside in a dedicated, interest- bearing trust fund similar to other financial assurance models legislated by Congress. Otherwise, the fees collected may disappear into the Treasury, resulting in an inter-generational transfer of costs to future taxpayers.

In my view, clarifying the language of Senate Bill 1013 as I have suggested will help to ensure the continuity of financial assurances for long-term stewardship, offer a measure of financial certainty to the developers of CCS demonstration projects, and send a positive signal to the private capital markets interested in investing in CCS technology.

My written testimony elaborates on these areas and highlights my views with respect to other elements of financial assurance and indemnification structure proposed by Senate Bill 1013. Thank you.

SEN. BINGAMAN: Thank you very much. I think you all have provided very useful testimony. Let me just ask anyone of you that would want to respond, one of the points Representative Lubnau made was that we need to be more specific about what we do with unscrupulous operators of CCS projects.

Is that something that makes sense, is that something we need to be addressing, in more specific terms if so what do we do? If an operator of a CCS project goes belly up or leaves town or becomes untrustworthy what should we put in legislation to solve that problem.

Mr. Anderson or Mr. Moor, have you ever thought about that?

MR. ANDERSON: We've thought a lot about it. My first part of my answer would be what I -- one of my final statements, don't be quick to throw away the current liability system that is something we have that encourages good behavior.

Don't be too quick to relieve people of liability on a permanent basis unless you've identified a genuine problem with capital formation and targeted a policy response to that.

The insurance companies and the people who loan money to projects, invest in projects are a great ally on this. People who in the private sector are not likely to invest lots and lots of money unless they have some confidence, a lot of confidence in the quality of the operations conversely to the extent investment community doesn't have confidence that an operator is going to be a good operator. That operator is going to have to pay more for its capital and that's a good thing.

SEN. BINGAMAN: Mr. Moor, did you have a thought?

MR. MOOR: Yes, Mr. Chairman, I associate myself with Scott's remarks. We -- this is, I think, why we've concentrated on the mutualization model because we believe that the mechanisms inherent in that kind of model can help guard against the rogue activity and reassessment of risk associated with either bad behavior or a bad risk profile can be guarded against by using the forces of the markets.

And we've had some concern about the use of trust funds would simply be as, I think, we've called it Joe's Crab Shack and CO2 sequestration operation would simply show up and begin to pay the fee and say we're in, who can stop us.

Whereas in mutualization and insurance -- with insurance products there is a certain level of guardianship of capital that should keep those kinds of operators out of the business.

MS. TRABUCCHI: Can I actually offer something --

SEN. BINGAMAN: Yes, please.

MS. TRABUCCHI: I think it's extremely important as you consider this bill and in my view developers of CCS projects should remain fully financially responsible during the operating active injection period of the project and for a defined period post injection.

In so doing you're rendering them financially accountable for their action and that will foster sound site collection, sound operating decision because they are the ones who remain responsible.

So any thinking about long-term indemnity really should be about long-term stewardship. It shouldn't take place during the operational period.

SEN. BINGAMAN: Okay.

Let me call on Senator Corker for any questions he has.

SEN. CORKER: Okay. Mr. Chairman, first of all these witnesses are outstanding. They were very concise and understandable and I thank each of you for your testimony and -- while I have some concerns about the viability of CCS, I want to thank you for offering this title.

I strongly support us researching in this area and developing standards.

I just have concerns about the viability, but I realize coal is a very, very important part of what we do power production wise.

And I think we need to be doing numbers of things to figure out a way to solve this issue, but it's always nice to get a temperature check on all those involved as to its reality.

Let me just -- as it relates to the Southern Company, when you -- one of the reasons that you use coal is its abundance, and in essence its lesser expense, if you will, in delivering power.

When you start to fathom all of the expenses required with sequestration -- capture, sequestration, pumping, insurance, all of those things of having Mr. Tombari's great firm to do this.

I mean, at the end of the day, does it make you all begin to look at nuclear and other kinds of things. Is it going to render coal, basically? I mean is this a transitional issue that you see your company in essence moving away from coal in general and using CCS in the interim as a transitional way of dealing with it?

MR. MOOR: Thank you, Senator Corker. I think it -- we -- there will be changes in generation mix. We're committed to programs that will increase our nuclear utilization. We're looking at two new possible nuclear units in the Southeast. We know that TVA is likewise focused on that.

Our commitment to IGCC is in part a statement that we believe that coal has to be a part of the mix that is an approach that our CEO has taken across the board in saying we can't throw anything out. We've got to have it all.

We have a number of very valuable, of very efficient, very well- regulated, from a polluting standpoint, relatively new coal-fired facilities that need to be preserved.

And if we can retrofit them with technology, it -- there may be as I said too happy coincidences for us. One we've been blessed with some good geology in the southern part of the service territory that we had some salient aquifers that are probably is -- most people and maybe John will back be up on this -- are some of the most attractive real estate for doing sequestration projects, so that works I think in our favor.

The other thing is the Southeastern oil fields are in need of CO2. There is a demand for it. Thus when we did the IGCC look at Mississippi, we could look down the road and see that some of the oil companies were interested in our CO2.

So the combined economic benefit is attractive and we are like TVA in this regard. We've seen this resource do amazing things for our region. Hydro and coal have made the Southeast.

The Southeast is a bastion of economic development in a country that desperately needs production and good jobs and to see that disappear and not fight the good fight for a fuel that has been so valuable and important for development in our region would seem to be a -- to us to be the wrong thing to do. And so we're going to continue to pursue it. We've -- we're continuing to pursue these technological approaches and efforts like this because we believe that it has to be a combined effort.

We are in essence sending in a man to the moon through the CCS effort and we've got to do it together, if it's got to be a collaborative effort with the environmental community and public citizenry. So we're going to pursue it hard.

SEN. CORKER: Would it be your sense that for the sake of our country not just a particular region that we need to be working equally hard if not harder towards recycling of nuclear fuels although we have a carbon free way of producing power in this country.

And if you're going to weight our efforts towards CCS or towards recycling nuclear fuel and being serious about building 100 new nuclear plants in the next 20 years, which would you weigh towards?

MR. MOOR: Beyond my pay grade, I'll confess first but I would say focusing on the coal side of the equation that the regional nature of the resource, the tremendous capital required for investments in both of those technologies mean that whatever steps forward we take, they are likely to be expensive and the region will feel the economic impact, not just the close-in region but the neighboring region because we exchange power with TVA. We exchange power with other partners in the Southeast.

I think it's the decision of a lifetime and we're going to have to do with a full and open process that lets everybody know what's about to happen. The public service commissions have to understand that either one of these approaches is tremendously expensive.

They've got to understand why we're doing it and what's motivating us for the good of the environment, but also the real consequences in terms of cost and they will be significant.

Ms. Trabucchi, I -- the -- you talked about the availability of cash, you were quite a student of federal government here and how things disappear.

(Laughter.)

But the availability of cash to pay clients, I think, is what you were talking about. Just give us a sense of the type of claims that one might envision in the way of damages and Mr. Tombari, if you have any thoughts since you're obviously an expert in this area, but for those of us who might think about some of the lingering liabilities, I mean, I don't know what, you know, CO2 does to -- in the underground as it relates to formations.

I don't know what some of the liabilities are but could you cite a couple of examples, where we as citizens might want to recover from a company like Mr. Tombari -- what would the damages be?

MS. TRABUCCHI: Well, let me preface my remarks by saying that I'm not an attorney, so I wouldn't want to make a representation of what would be a legal claim. With that said, I could envision dollar damages that might involve natural resources, groundwater contamination, aquifer contamination, endangered species perhaps I think said -- and again I'm not a scientific expert or an engineering expert, so I can't comment on whether you know when CO2 travels what might happen to that plume.

But I think there are analysis that can be done that look at the different receptors, which I think is part of what you're getting out with your question. The transport mechanisms and if there should be an event how it would adversely impact those receptors to harm or injury. And then there are analyses that you can do to place a dollar value on that.

SEN. CORKER: Mr. Tombari any --

MR. TOMBARI: Yes, sir.

SEN. CORKER: What is it that in your great research and preparedness for this, what are the things that you worry about happening down the road, do you want to, I don't know, pass the liability well beyond after the CO2 has kind of balanced itself. I didn't use the right terminology I know, but what are the things in the interim that concern you as it relates to the things that could go wrong.

MR. TOMBARI: Talking about down the road, I think, it's important to realize that the challenges do drop off. The challenges are higher during the operational phase in the equilibrium. But at the point of time when we are asking for stewardship, there really is minimal expense left to do care and also absolute minimal challenges. So we don't anticipate anything dramatic being left at that point in time.

I also like to point out that once -- again we're talking about carbon dioxide, which is something we breathe out. It's something that is in your soda pop, so that's -- that's my thoughts on that. Thank you.

SEN. CORKER: So not very damaging?

MR. TOMBARI: No.

SEN. CORKER: Mr. Chairman, thank you. And thank ---- (cross talk.)

SEN. BINGAMAN: Thank you very much. Thanks for -- thank you all for being here. This is very useful testimony and let me particularly thank Allison Anderson who has worked so hard on this legislation. She has done a great job.

And we hope to take the suggestions we've heard here today and perhaps even make additional improvements, and thank you again. That will conclude our hearing.

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