The EU Directive on the Geological Storage of Carbon Dioxide ('CCS Directive')
Overview: the basic structure of the liability regime in the EU CCS Directive
The liability provisions of the EU Directive on the geological storage of carbon dioxide (Directive 2009/31/EC) focus, like the rest of the Directive, on the storage phase of CCS. The basic structure of those provisions is relatively straightforward.
There is to be only one operator at each storage site, the injected CO2 stream must consist overwhelmingly of CO2 and no conflicting uses of the site are permitted. The operator is responsible for correcting anything that goes wrong throughout the life of the storage facility, from site selection and initial construction, through the active injection period to eventual closure of the site and thereafter for an indeterminate period of post-closure care. The operator must monitor continuously all aspects of the CO2 flow and the surrounding storage complex, submit to both routine and non-routine inspections, and both report and respond with corrective measures to any leakages or "significant irregularities" that occur (see definitions below).
The competent authority may order corrective action at any time or may carry out such measures itself, holding the operator liable for its costs. An indication of the nature of such measures must be included in an approved corrective measures plan completed as part of the initial permitting process, but the authority has the power to demand measures that differ from and go beyond that plan, including measures to protect public health.
In addition, the operator is also liable for any wider environmental remediation required under the Environmental Liability Directive (Directive 2004/35/EC; henceforth, the 'ELD') and for any surrender of emissions allowances required under the Emission Trading Scheme Directive (Directive 2003/87/EC) (both of which have been amended to include CO2 storage within their remits) (see EU Emission Trading Scheme section)
When CO2 injection at a storage site comes to an end, a closure process has to be carried out, entailing sealing of the site and removal of the injection facilities. Thereafter, the operator remains liable for monitoring the site and for any necessary response action until a moment when the competent authority determines that the injected CO2 is safely contained for the indefinite future, at which point responsibility is transferred to the authority. The Directive requires that a minimum period after closure, to be determined by the competent authority, should have elapsed before transfer can take place. It specifies that that minimum should normally be no less than 20 years, but it allows the authority discretion to accept transfer earlier, provided it is convinced that the other conditions about permanent containment have been met (see below).
Throughout the period of liability, the operator must hold effective financial security to cover all obligations arising under the operating permit, including closure and post-closure requirements, and any obligations under the emission trading Directive (although not those arising under the ELD). That financial security must remain in place even if, at some stage, the permit is withdrawn from or surrendered by the operator, until either the point of transfer to the competent authority following closure or the issuance of a new permit for the site to a different operator. Before final transfer takes place, the operator must also make a separate contribution to a financial mechanism set up to cover the competent authority's post-transfer costs, including at least the anticipated costs of monitoring the site for a further 30 years, but possibly also covering other costs that the authority determines are needed to ensure complete and permanent containment of the CO2 after the transfer.
Further detail on some of the more technically demanding aspects of the regime has been provided in a series of guidance documents (see Legal resources section below).
Analysis and Key Questions
Overview
In line with other EU directives regulating industrial activities, the liability provisions in the CCS Directive:
provide a definition of actionable harm;
channel responsibility for dealing with this harm to the operator;
give a broad indication of the response action that will be required;
include some elements of compulsory financial security; and
define the continuing liability of the operator after active operations have ceased.
In two respects, the provisions go further than other directives: in the post-closure phase, they provide for transfer of legal responsibility to the State once the competent authorities are satisfied that the stored CO2 has been permanently contained; and they impose a duty on the competent authorities, rather than the more usual discretionary power, to carry out necessary corrective action if the operator fails to do so.
If a storage facility enjoys a relatively trouble-free life and public policy on CCS remains supportive throughout, the effective liability framework for the site may be as simple as that: strict liability
on the storage operator for any response actions needed to deal with leakage or significant irregularities, backed up by two elements of financial security, and with responsibility eventually handed over to the competent authority once the stored CO2 has demonstrably reached a secure state. Supplementary liabilities under the ELD or emission trading Directive could be more complicated, but in many instances may not even arise.
Given operating lives measured in decades and considerable uncertainty surrounding public policy in this and associated fields, there is a strong possibility, however, that at least some significant incidents occur during the lifetimes of the sites and the rules therefore come to be tested. In those circumstances, the detailed provisions of both the CCS Directive itself and the other laws that underlie it will need careful attention.
Key definitions (Article 3)
"Leakage" is defined as 'any release of CO2 from the storage complex', while "significant irregularity" means 'any irregularity in the injection or storage operations or in the condition of the storage complex itself, which implies the risk of a leakage or risk to the environment or human health'.
The "corrective measures" required in both cases are defined as 'any measures taken to correct significant irregularities or to close leakages in order to prevent or stop the release of CO2 from the storage complex'.
The primary responsible party - the "operator" - is defined as 'any natural or legal, private or public person who operates or controls the storage site or to whom decisive economic power over the technical functioning of the storage site has been delegated according to national legislation'. This is a definition already used in other EU directives and in most cases is likely to have a settled interpretation, but nevertheless it leaves open some room for dispute about precisely which corporate entity is in control of, or has decisive economic power over, the functioning of a site. That uncertainty increases where more than one party is involved in the site operation and, more importantly, where the harm is not discovered immediately and equity control over the operating entity has changed hands in the meantime.
The definitions of "substantial change" ('any change not provided for in the storage permit, which may have significant effects on the environment or human health') and "significant risk" ('a combination of a probability of occurrence of damage and a magnitude of damage that can not be disregarded without calling into question the purpose of this Directive for the storage site concerned'), both provide grounds for challenging the conformity of a site's activities with the conditions of its operating permit.
Art.3 also distinguishes four different physical and geological entities, whose inter-relationships could have a bearing on the adequacy of the operator's performance and therefore any potential finding of fault (see key issues section below):
"storage site" means 'a defined volume area within the geological formation used for geological storage of CO2 and associated surface and injection facilities';
"storage complex" means 'the storage site and surrounding geological domain which can have an effect on overall storage integrity and security; that is, secondary containment formations';
"hydraulic unit" means 'a hydraulically connected pore space where pressure communication can be measured by technical means and which is bordered by flow barriers, such as faults, salt domes, lithological boundaries, or by the wedging out or outcropping of the formation'; and
"geological formation" means 'a lithostratigraphical subdivision within which distinct rock layers can be found and mapped'.
Harm and corrective measures (Article 16)
Identifying the harm
As with any liability regime, the first important question is how the relevant harm (in this case, leakages and significant irregularities) will come to light. Under the CCS Directive, they will primarily be detected either by the operator in the course of monitoring his activities or by the competent authority when conducting inspections. However, the Directive also requires the authority to investigate "serious complaints" related to the environment or human health (Art.15(4)(c)), by conducting a non-routine inspection, and allows that the authority may be "made aware" of harmful events in some unspecified way, as well as being formally notified of them (Art.15(4)(a)). This clearly suggests a role for other agencies and individuals to report problems to the authorities when they have evidence to back up their concerns.
Obligations on the operator, the Member State and the competent authority
Where leakages or significant irregularities are detected, the first duty of the operator is immediately to notify the competent authority, both under the terms of this Directive and, where necessary, under the emission trading Directive. Any failure to do so would represent a breach of the permit conditions and be subject to a penalty (Art.28) (see below). (Behind this, there are also wider reporting requirements under Art.14, failure to complete any of which would also be an infringement and therefore a fault, with important implications for future liability.)
The Member State must then ensure that the necessary corrective measures are taken, either by the operator or by the competent authority which in turn must recover its costs. Those measures must include, as a minimum, the actions indicated in the corrective measures plan set out in the operating permit, but the authority has the power to order other actions which go beyond and diverge from that plan.
The authority also has the power to require the operator to take necessary corrective measures, at any time, "as well as measures related to the protection of human health", or decide to take those measures itself and then recover its costs.
The nature of the corrective measures
Although no detail on the nature of the corrective measures is given within the Directive (see key issues section), their primary focus seems to be upon containment and prevention or mitigation, or immediate clean up. They may include measures to protect public health, but there is no mention of wider remediation or restoration of the environmental elements that have suffered. Those larger response objectives are left to the ELD, which covers injury to protected habitats and species, regulated water sources and land (although the last only insofar as there is danger to human health) (see separate entry on ELD). Further detail on corrective measures is is set out in the guidance documents accompanying the CCS Directive (see below).
Closure and post-closure obligations (Article 17)
Upon closure of a storage site, the operator continues to be responsible for:
all monitoring, reporting and corrective measures required under the storage Directive;
any surrender of allowances under the emission trading Directive; and
preventive and remedial action under the ELD,
until such point as the legal responsibility for the site is transferred to the competent authority under Art.18 (see below).
The operator is also responsible for the removal of the injection facilities and the sealing of the site. All of this has to be undertaken on the basis of a post-closure plan, based on best practice and in accordance with requirements set out in Annex II of the CCS Directive. That plan will have been submitted to, and approved by, the authority in a provisional form as part of the storage permitting process, but will have to be updated and re-approved as a definitive plan prior to the completion of site closure.
In the separate circumstances where the competent authority has previously withdrawn an operator's storage permit, the monitoring and corrective measures responsibilities (including those under the emission trading Directive and ELD) will lie with the authority, working from the operator's provisional post-closure plan, updated as necessary, and then recovering all its costs from the operator. The authority will then continue to hold the operator responsible for any costs incurred until such time as it decides that the stored CO2 has reached the required state of stability to qualify for transfer of responsibility (see below).
The conditions that have to be met for closure to take place are not specified in the Directive, but will be set out in the storage permit (Art.9(7)). Further details are provided by the guidance documents (see below).
Transfer of responsibility (Article 18)
At some point after closure of a storage site has been approved, a process can begin which leads to the transfer to the competent authority of responsibility for:
monitoring and corrective measures under this Directive;
preventive and remedial action under the ELD; and
surrender of allowances under the emission trading Directive.
Conditions for transfer of responsibility
The Directive specifies a series of steps that have to be taken before transfer can be concluded. First, four conditions have to be met:
all available evidence indicates that the stored CO2 will be completely and permanently contained;
a minimum period, to be determined by the competent authority has elapsed, that minimum being no shorter than 20 years, unless the competent authority is convinced that the condition specified in (a) has been met before that;
financial obligations set out in Art.20, concerning a mandatory contribution towards post-transfer costs (see below), have been fulfilled; and
the site has been sealed and the injection facilities have been removed.
The operator's report
As part of this, the operator must prepare and submit a report showing that the site has met the requirements in point (a) above. This document must demonstrate at least three points:
the conformity of the actual behaviour of the injected CO2 with the modelled behaviour;
the absence of any detectable leakage; and
that the storage site is evolving towards a situation of long-term stability.
The Commission's opinion
Once it has reviewed this evidence, the competent authority in the Member State will prepare a draft decision of approval of transfer once it is satisfied that points (a) and (b) above have been met, also outlining how the requirements in (d) have been fulfilled. Member States will then provide the Commission with the operator's report and the competent authority's draft decision on transfer, together with any other relevant material, the Commission having four months to decide whether to respond with a non-binding opinion about it.
Finally, once the competent authority is satisfied that all the points (a)-(d) have been complied with, it will adopt a final decision and notify both the operator and the Commission, giving the latter reasons if it decides to depart from the Commission's opinion.
Nature of the transfer
These provisions are at the heart of the special arrangements in this regime to deal with long-term liability. Given the complexities involved, it is quite difficult to specify precisely how such a transfer is to take place, so it is not surprising that Art.18 contains several ambiguities whose interpretation could have a significant effect on the consequences of transfer. More detail on the requirements for transfer is provided in the guidance documents. Nevertheless, among other things, there are reasons for thinking that the transfer may not amount to an absolute indemnity or comprehensive release from further liability (see key issues below).
Fault What is it?
In addition to the potentially limited nature of the transfer, the Directive also specifies one circumstance in which the competent authority must re-open the operator's responsibility even after transfer has been approved; that is, in cases where there has been fault on the part of the operator. Art.18(7) offers five examples of what would constitute fault in this context:
cases of deficient data,
concealment of relevant information,
negligence,
wilful deceit, or
a failure to exercise due diligence.
The authority's discretion here is limited. Where fault has been committed, the Directive specifies that "the competent authority shall recover from the former operator the costs incurred after the transfer of responsibility has taken place". This implies that the authority has a duty to recover its costs in these circumstances, rather than merely an optional power to do so.
Although the same paragraph concludes by saying that, without prejudice to Art.20 (requiring the operator to contribute to a mechanism for funding of post-transfer costs - see below), "there shall be no further recovery of costs after the transfer of responsibility", the provision relating to fault potentially leaves a rather big hole in that commitment (in addition to the other possible limits to the indemnity that transfer provides - see key issues below).
Two types of financial security requirement are included in the Directive:
a financial assurance provision obliging operators to hold and maintain throughout their period of responsibility a financial security product sufficient to ensure that all obligations arising under the storage permit, including closure and post-closure requirements, as well as any obligations under the emission trading Directive (but not those under the ELD), can be met; and
a separate financial contribution to the competent authority, just before transfer of responsibility, sufficient to cover at least the anticipated cost of monitoring the site for 30 years after transfer, but also potentially to cover other post-transfer costs, if required to ensure complete and permanent containment of the injected CO2, with each operator's contribution taking account of the operational history and risks associated with the relevant site.
As with the financial security provisions in other environmental laws, while there is no reason why large operators should be unable to meet these requirements, there could be problems if the wording of the provisions is taken too literally. There is also a possibility that the post-transfer funding mechanism could end up as a much larger financial undertaking than was initially envisaged (see key issues section below).
Information to the public and penalties (Articles 26 and 28)
The CCS Directive requires Member States to make available to the public "environmental information" relating to the geological storage of CO2 in accordance with applicable Community legislation. In the context of the EU's commitment to the principles in the 1998 Aarhus Convention on Access to Information, Public Participation in Decision Making and Access to Justice in Environmental Matters, it should probably be assumed that, under Article 26 of the Directive, almost everything involved in CO2 storage regulation could eventually be made available to the public, even quite sensitive pricing decisions on matters such as financial assurance. Such information disclosure is likely to raise the public profile of CCS operations, not always in a sympathetic way, and will tend to increase, rather than diminish, liability risks.
Art.28 requires Member States to lay down rules on penalties for infringements of this Directive and to take "all measures necessary to ensure that they are implemented". It also requires that those penalties be "effective, proportionate and dissuasive". While historically the penalties imposed in Europe for environmental infringements, in terms of fines and imprisonment, have been much lower than those applied in North America and elsewhere, this provision could lead to quite large fines against operators who break the rules. If so, the publicity surrounding such penalties can be a potent force in driving liability costs upwards.
Key issues concerning CCS
General considerations
Inevitably perhaps, the liability provisions of the EU CCS Directive contain some ambiguities and problematic wordings. Overall, as in most industrial regulatory regimes, there is the potential for a clash between the unavoidable, residual uncertainties of scientific assessment and the demand for legal certainty in regulatory standards. How far these factors will complicate the regime is likely to depend mainly on the safety record of the operators, the prevailing public mood towards CCS and the approach taken by the public authorities.
The guidance documents help to resolve some of these issues, but there will always be a limit to how far technical ambiguities can be ironed out in regulatory texts. Some of the uncertainties are, in any case, not so much technical in the scientific sense, as political or matters of public policy, over which there is always an element of regulatory risk, especially for activities expected to continue for decades into the future.
The liability regime relies upon other, wider liability regimes - notably, the EU Directives on environmental liability (Directive 2004/35/EC) and emission trading (Directive 2003/87/EC) - for the full remedial and compensation requirements that operators will face. The overlap between the CCS Directive and these other laws, including also differing national legal rules in the Member States which supplement or underpin the EU legislation, has the potential to complicate the position further if and when harmful events occur.
Migration of CO2, conformity to modelling and storage site boundaries
Although only one operator will be permitted at each storage site, the Directive does allow the operation of more than one storage site in the same hydraulic unit, provided the pressure interactions between them do not compromise each site's ability to meet the requirements of the Directive (Art.8(1)(c)). Several provisions in the Directive also require that the actual behaviour of the injected CO2 conforms to the behaviour predicted in modelling exercises performed prior to operation and updated as it progresses. These provisions leave room for ambiguity in several respects, including the status of any migration beyond the intended storage site boundaries into the larger storage complex, which acts as secondary containment. Some of that is surely anticipated - hence the provisions allowing models to be updated and changed (Art.13(2)) - but even where this falls short of a significant irregularity, because it does not result in leakage or a risk to health or the environment, it is unclear how far it could be treated as unforeseen or unintended, and therefore potential grounds later on for either a delay in the transfer of responsibility (Art.18(2)(a)) or a re-opening of liability after transfer, on the basis of fault (Art.18(7)) (see below).
Harm and corrective measures
Article 16(3), allowing the competent authority to require the operator to carry out corrective measures "at any time", implies that such corrective action can be ordered even where no leakage or significant irregularity has, as yet, been shown. This power could be used in a precautionary way, where a problem is thought likely to occur, even though conclusive evidence is hard to collect, but the wording seems quite open-ended, suggesting a wide discretion to require action whenever the competent authority deems it necessary. It is not clear where the burden of proving its necessity would lie, although the courts at both EU and Member State level would be unlikely to allow capricious or oppressive enforcement.
The text of the Directive is similarly vague about the nature of the measures that will be required, making it difficult to estimate their possible costs. Some guidance on this is provided in the guidance documents and the tone of these provisions suggests that the authorities will rely, where possible, on best practice and co-operative regulation, as already occurs to a great extent with other directives. On the other hand, the emphasis in Art.16(2) on the previously approved corrective measures plan being just the minimum response and the discretion granted to the authority in Art.16(3) to add further tasks and obligations, could be read as an invitation to go beyond the necessary minimum.
Operators might also be reluctant to resist demands from the competent authority, for fear of escalating costs if they leave the authority to carry out the corrective action, instead of conducting the work themselves and thereby having more control over what is done. At the same time, where harmful events cause damage to the surrounding environment, the extent of the corrective measures under the CCS Directive may not matter so much, because at that point both the ELD and any underlying Member State clean-up laws could come into play, potentially bringing more onerous requirements.
More generally, the text of the CCS Directive tends to focus upon harm that results from handling of the CO2 stream. It needs to be remembered that, like any industrial sector, CCS operations will involve numerous other substances, compounds and activities which can lead to damage and, in certain circumstances, some of those aspects could fall outside the scope of the Directive and be picked up by other laws.
As a result, the provisions of the CCS Directive represent only the primary response to a damaging incident. With luck, in most cases that will be all that is required. But it needs to be borne in mind that a sufficiently serious event could incur liabilities that go much further, in complex and as yet largely unpredictable ways.
Relationship with the Environmental Liability Directive (ELD) and underlying Member State laws
At this point, the ELD is still in its infancy, so it is hard to predict the cost of its requirements. In principle, however, it can require a threefold response effort, covering primary, complementary and compensatory remediation (see section on the ELD), including in some cases compensation for the interim loss of natural resource services until remediation is complete.
There is also room for confusion here insofar as several key definitions and provisions in the ELD differ from those in the CCS Directive (on top of the fact that the ELD itself sits uneasily alongside underlying national laws at Member State level - see section on the ELD.
In addition, any harm to the local environment could trigger separate obligations under Member State laws covering contaminated land, water pollution and other environmental harms, irrespective of whether the ELD applies. There are many of these which are not pre-empted by EU legislation. They are both stricter than the ELD in certain respects and have the potential to draw in other responsible parties, such as site owners and the producers of the harmful/dangerous substances. They also offer fewer defences to liability and generally do not contain the limitation periods included in the ELD, a matter which could be important in the long term.
Neither the CCS Directive nor the ELD has any bearing on civil and common law claims for harm to persons and property. Those are left entirely to national law. Any compensation or remediation obligations which result from such claims will therefore be additional to requirements under EU and Member State environmental statutes, but could include major costs such as reinstatement of habitats and species, compensation payments for victims of bodily injury or losses in property values, and business interruption claims where economic activity has been disrupted.
Relationship with the Emission Trading Scheme Directive and other EU legislation
Any unauthorised leakage of captured CO2 to the atmosphere will incur further response costs under the Emission Trading Scheme Directive (Directive 2003/87/EC), in the form of surrender of carbon trading allowances to an equivalent amount. It is even possible that some liability could still arise under other EU environmental laws, despite amendments to them which are intended to avoid that. In certain circumstances, for example, the corrective action requirements at the time of plant closure under the Integrated Pollution Prevention and Control Directive (Directive 2008/1/EC) or the polluter pays provisions of the Waste Directive (Directive 2008/98/EC) could come into play (eg, if injected CO2 escapes control and is consequently deemed to have become waste).
Closure and post-closure obligations
One issue that may need attention as the closure phase in the CCS operations approaches is the grounds upon which a competent authority may withhold or postpone approval of site closure because of anomalies in the condition of the storage site. The Directive simply requires that the relevant conditions in the permit have been met before closure can be authorised. Provided CO2 plumes behave in reasonably predictable ways underground and there are no outstanding corrective or remedial measures still to be completed, that could be relatively simple. But since storage sites will not be reaching the closure stage for several decades ahead, there is bound to be some uncertainty about the nature of any emerging requirements concerning plume migration and behaviour that are introduced under Annex II before that moment arrives.
Transfer of responsibility
The provisions on transfer of responsibility to the State are open to a number of interpretations and will require a degree of common sense in their application if they are to work. The concept of fault included within them could give the authorities wide discretion to re-visit liability after transfer has nominally taken place (see below).
Several elements of this process could cause problems. In particular, the first condition for transfer, that all available evidence shows complete and permanent containment of the CO2, if taken literally, could be hard to fulfil. In today's political climate, it is not hard to find conflicting scientific opinions about even relatively settled technical issues. Most scientists will also tend to include caveats in any predictive statements about the permanence of physical conditions more than a few years ahead. Some common sense or reasonableness is therefore likely to be needed if that criterion for proceeding with transfer is to be met.
Behind it, however, each of the three factors required to be included in the operator's report documenting permanent containment could cause problems. The conformity of the actual behaviour of the CO2 to the modelled behaviour raises the question of how recent the adjustments to the modelling can be for conformity to be established - given that it is expected that the modelling will have to be repeatedly adjusted and updated over the life of the storage site. The requirement that there be no detectable leakage seems rather absolute in the context of modern engineering and detection technology, where fugitive emissions in tiny quantities are routinely designed into some systems and detection techniques are able to identify ever-smaller amounts of target substances. And the demand that the site is evolving towards long-term stability, though perhaps the least difficult of the three, may still be difficult to prove, given the need to secure universal agreement for the all available evidence test.
The second condition for transfer, that the competent authority should set a minimum period after closure before transfer can take place, with a non-binding suggestion that this be at least 20 years, is also rather awkward. Its wording shows signs of a legislative compromise, not quite succeeding in reconciling a demand for a statutory minimum period with a contradictory one for a status test instead of a minimum. At the same time, the number of years suggested as a minimum could be viewed as odd when placed alongside a similar provision in the landfill of waste Directive (Directive 1999/31/EC) under which operators are required to finance after-care costs for at least 30 years after site closure and, in some Member States, the authorities require double that period. If viewed as an anomaly, that could lead to pressure to extend the minimum timescale and further pressure to enlarge the provision for funding of post-transfer costs (see below).
The Directive invites the European Commission to adopt guidelines on the assessment of the three points in the operator's report, highlighting any implications for decisions about the minimum period that should elapse before transfer. In response, one of the guidance documents looks at the general issue of criteria for the transfer of responsibility.
Aside from the conditions that have to be met, there are also two other key issues concerning transfer of responsibility:
how far transfer represents an absolute end to the operator's liability exposure and
the provision in Art.18(7) allowing liability to be re-opened after transfer where the operator has been at fault.
Potential limits to the transfer
The first of these raises the question of what exactly is being transferred to the competent authority. The main point here is that there are likely to be limits to that transfer, with the result that the operator could still incur liabilities from certain sources even after the statutory transfer under the CCS Directive has been completed. There are several ways that could happen.
First, under the Directive itself, transfer will offer no protection against claims brought under civil and common law, for bodily injury, damage to property, pure economic loss (where that is allowed) or any other heading that the civil courts see fit to consider. Depending on the jurisdiction involved and the cause of action, some of these will require proof of fault on the part of the operator, but others are based on strict liability. Member States may or may not decide to add protection from civil claims to the regime when they transpose the Directive into national law - although if they do so, they might be vulnerable to a complaint under EU law that such a national regime is less stringent than that specified under the Directive (whether such a complaint would succeed is another matter).
Second, transfer will equally not apply to liability under Member State statutory law on environmental damage (contaminated land, water pollution, etc), again unless the Member State involved chooses to add such protection to the regime when it transposes the Directive into national law. If sympathetic to CCS, Member State authorities might decide not to re-visit an operator's liability after transfer in this situation, regardless of such transposition, as contrary to the spirit of the CCS regime, but that would be at their own discretion and not guaranteed.
Third, it might not protect against actions brought under other EU environmental laws, insofar as those are not explicitly specified in the CCS Directive (see above).
Fourth, it would not cover claims brought by other parties under contract - however unlikely that might seem at this stage, it is by no means impossible.
And fifth, the transfer arrangement itself may have to be qualified (or postponed) where previous incidents or disputes remain unresolved at the time when transfer would otherwise be due - including such factors as long-term clean-up actions (eg, pollution of groundwater, restoration of habitats, etc).
Fault provision
While many other liability regimes make limitations on liability conditional upon the responsible party not being at fault in some way, the standard set for determining fault is usually more restrictive than what is included in this Directive.
The list of examples given for what would constitute fault is a very mixed bag, from concealment of information and wilful deceit at one end - both of which might result in criminal prosecution - through simple negligence and a failure of due diligence, to the much more open-ended notion of deficient data. At a time when CCS is a new field of activity, with little in the way of accepted standards or best practice in data collection, it is very unclear what might count as deficient data. While no doubt experience will be accumulated in the years before any site reaches the point of transfer, so that there is time for a standard to emerge, there must also be a temptation here to treat any serious harmful event which occurs after transfer as prima facie evidence of deficient data collection or negligent conduct, especially if the activity involves a large corporate entity. Depending upon the seriousness of any harm, it seems quite possible that the burden of proving that sufficient care has been taken before transfer, might be shifted back to the operator unless the mood of the authorities at the time when the harm is discovered is sympathetic to the operator involved.
The way the fault provision is worded, it is not clear whether there has to be a causal connection between a specific fault and the relevant harm which becomes manifest after transfer. Art.18(7) simply states that the competent authority shall recover from the former operator in cases "where there has been fault on the part of the operator". Questions may arise about how far back in the CCS process the fault can be for it still to qualify as grounds for re-opening liability; could it, for example, include deficient data collection at the time of site selection? And could data collection which met industry standards at the time subsequently become deficient when newer techniques reveal inadequacies in the older methods? Again, some clarification may need to be provided on such points.
Financial Security
The first element of the financial security provisions - the financial assurance requirement - contains some potential problems.
First, like many such legislative wordings, the requirement that the financial security product be sufficient to meet "all obligations" under the permit, as well as those under the emission trading regime, could prove unrealistic. Neither insurance nor other financial security products offer unlimited indemnities, free of exclusions and qualifications. There will be little problem for a large corporation to provide security in some form for quite large amounts - probably amounting to hundreds of millions of euros. But there may be pressure from critics of CCS to demand cover of an almost unlimited kind, to indemnify the taxpayer against a maximum conceivable loss from, say, a catastrophic release of compressed CO2 which causes injuries to both the environment and a substantial human population. If it is to work, application of this requirement will have to be based on a realistic assessment of risk.
Second, there is an anomaly in the coverage required from the compulsory financial security, inasmuch as it must cover all the demands of the CCS and emission trading Directives, but does not need to cover any preventive or remedial obligations under the ELD. The reason for this is that compulsory financial security was proposed during the debates on the ELD but rejected during its legislative passage. The EU institutions could not now impose it by the back door via the CCS Directive, without seeking a more substantial amendment to the ELD itself, which could take a long time (although such a revision of the ELD is due to be debated in the next few years in any case, so the position might change at that stage). Perhaps more importantly, however, the required financial security will also not cover personal injuries or property damage caused by CO2 storage, despite the fact that such harms are one of the major concerns in public debate about CCS. Since such injuries come under civil and common law and remain under national jurisdiction, they were beyond the reach of the Directive, although Member States could choose to add them into the financial security requirement within their own jurisdictions if they so wished.
Finally, the nature of the financial security products that will be accepted for this purpose is left for the Member States to decide. That leaves room for considerable differences between Member States, where insurance and financial services regulations differ markedly, on matters such as what types of products, conditions and deductibles are accepted, what levels of capital adequacy are required, how far operators would be allowed to use captive insurers or self-insure through their balance sheets, etc. The cost of such financial security could also vary substantially from one country to the next. For large operating companies, these factors might not present much of a problem, because they are well-used to insuring or financing large projects. If small and medium-sized entities become involved in CO2 storage later on, however, the financial assurance requirement and differential access to financial markets could cause difficulties.
The second element of the financial security provision - the contribution to a financial mechanism for post-transfer costs - raises different issues. In particular, Art.20(1) includes a provision allowing this mechanism to be used, not only for monitoring purposes, but also "to cover the costs borne by the competent authority after the transfer of responsibility to ensure that the CO2 is completely and permanently contained in geological storage sites". At first sight, this seems to contradict the requirement in the transfer provisions that transfer not be approved unless all available evidence shows that the CO2 will be permanently contained. What it seems to imply, however, is an acceptance that the evidence prior transfer can not absolutely guarantee permanent containment and that the competent authority should have access to these funds if it needs to fix a containment problem after transfer has gone through. While that seems a good idea in terms of public and environmental protection, it also opens the way to the authorities factoring in the costs of such post-transfer intervention, on top of the minimum 30-year monitoring costs. In that way, this could become an escalating cost if later scientific and monitoring techniques revealed unexpected containment problems and that could lead to pressure to amend this provision at some stage in order to secure a larger contingency fund to cover the authorities' future risks. Art.20(2) invites the European Commission to consult Member States on guidelines for estimating the costs that this financial contribution should be designed to cover.
The guidance documents specifically addresses these two elements of financial security under the CCS Directive and provide important clarification on these points.
Proposed and future developments
Member States have a deadline of 25 June 2011 for transposing the CCS Directive into national law. The European Commission is co-ordinating a regular exchange of information between the Member State governments on the transposition and implementation issues involved.
The first four guidance documents under the CCS Directive (see details above) are due to go out to consultation in the summer of 2010 and to be finalised later in the autumn.
An advisory scientific panel is due to be set up in the coming months.
Guidelines on monitoring and reporting of CCS activities, for inclusion in the EU emission trading scheme, are due to be finalised over a similar period.
Guidance Documents
The European Commission has published a set of four guidance documents to assist stakeholders in the implementation of the CCS Directive in order to promote a consistent approach throughout the European Union. These documents cover: (1) the CO2 storage life cycle risk management framework; (2) characterisation of the storage complex, CO2 stream composition, monitoring and corrective measures; (3) criteria for transfer of responsibility to the competent authority; and (4) financial security and financial mechanisms.