On 26 November 2008 the UK Energy Bill received Royal Assent. The new Energy Act (the "Act") implements the UK energy policy that emerged out of the Energy Review 2006 and the Energy White Paper 2007, namely to tackle climate change, reduce carbon dioxide emissions and ensure secure, clean and affordable energy.
The Act introduces new legislative measures that will affect all areas of energy investment in the UK from Oil and Gas to Gas Storage to Nuclear to Renewable Energy. This article summarises the impact of the Act on the nascent carbon capture and storage ("CCS") industry (see our related Law Nows for summaries of the Oil and Gas, Nuclear and Renewables elements of the Act).
The provisions relating to CCS in the Act cover the following areas:
- A new regulatory regime for offshore storage of CO2
- An extension of existing regimes relating to the abandonment of offshore installations to carbon storage installations
The provisions will therefore be relevant to companies hoping to carry out CO2 storage activities in the UKCS, whether acting as operators, owners or developers.
Offshore CO2 Storage
Prior to the new Act, the UK's legislative regime did not cater for the type of CO2 storage projects that the market is looking to develop as a means of significantly reducing CO2 emissions from fossil fuel power stations. Companies wanting to invest in CCS projects in the UK, together with prominent industry associations, have sought a clear regulatory framework to enable the permanent storage of CO2 offshore. The Government wishes to create such a framework to enable private sector investment in such CCS projects.
The Act enables the Crown to claim sovereign rights for the storage of gas (including CO2) within its exclusive economic zone, thus extending its ability to grant leases from the existing 12 nautical mile limit of the UK's territorial waters, to a maximum of 188 nautical miles within the UK's continental shelf. This is to be known as a "Gas Importation and Storage Zone".
Under the Act, a licence will be required for carrying out one
of the following activities within the territorial sea or Gas
Importation and Storage Zone:
- the storage of CO2 with a view to its permanent disposal (or as an interim measure prior to its permanent disposal)
- the conversion of a natural feature for the purpose of permanently storing CO2 (or as an interim measure prior to its permanent disposal)
- related exploration activities and
- the establishment or maintenance of an installation for any of these purposes
The Act provides that the Secretary of State for the Department of Energy and Climate Change ("SoS") and the Scottish Ministers (the "licensing authorities") are empowered to grant licences for such purposes under certain terms and conditions. In order to make use of the seabed or spaces under the seabed for the purpose of these activities, an operator may also have to obtain a lease or (outside the 12 nautical miles limit of the territorial sea) authorisation from The Crown Estate. The terms of any licence (for example, commencement and duration) may be linked with such lease or authorisation.
The Act provides a framework setting out (i) the requirements for granting licences and (ii) the terms and conditions of such licences. The licensing authorities must develop the detail of these requirements and terms and conditions in secondary legislation.
Failure to obtain a licence before carrying out any of the specified activities, or failure to comply with certain terms of the licence, would be a criminal offence with the penalty of a fine or imprisonment (imprisonment is not a penalty if the activity constituting the offence is an exploration activity or the establishment or maintenance of an installation in connection with an exploration activity). The licensing authorities will also be able to direct the licence holder to take steps to remedy a breach of the licence or engage a third party to take necessary action to remedy the breach at the licence holder's expense.
The SoS must maintain a register containing prescribed information relating to licences. It will be possible to exclude certain information from this register if disclosure would be contrary to the interests of national security or would prejudice to an unreasonable degree a person's commercial interests. Information excluded for commercial interests will cease to be prejudicial 4 years after the date the licensing authority decided to exclude it unless the person affected applies for an extension to such period.
The Act applies the provisions of the Petroleum Act 1998 relating to abandonment of offshore installations to CO2 storage installations.
The Act may apply to enhanced oil or gas recovery schemes with CO2 storage in specific circumstances to be set out in secondary legislation.
Next Steps
The UK will be required to transpose into national law the terms of the EU's Carbon Capture and Storage Directive when it is finally approved. The draft Directive contains detail on site selection, information required for storage licence (permit) applications, conditions required for issuing storage licences and the content of such licences. The draft Directive also contains detailed provisions on the operational, closure and post-closure obligations of the licence holder (including monitoring obligations, the transfer of post-closure liabilities to the relevant Member State and the provision of financial security) and on third party access to infrastructure.
The secondary legislation anticipated by the Energy Act will implement the detail contained in the Carbon Capture and Storage Directive and there may be a further opportunity for companies to be consulted on the terms of such secondary legislation. Of particular interest to companies wishing to carry out CO2 storage activities will be the circumstances under which financial security is required and the form of such security, the extent of post-closure and post-termination obligations of the licence holder and the conditions for termination of the licence. Key investors will also want to be involved in any consultation process to ensure the legislation is developed in a way that will enable the delivery of viable and bankable CCS projects.
This article was written for Law-Now, CMS Cameron McKenna's free online information service. To register for Law-Now, please go to www.law-now.com/law-now/mondaq
Law-Now information is for general purposes and guidance only. The information and opinions expressed in all Law-Now articles are not necessarily comprehensive and do not purport to give professional or legal advice. All Law-Now information relates to circumstances prevailing at the date of its original publication and may not have been updated to reflect subsequent developments.
The original publication date for this article was 10/12/2008.