Wanted: 1,000-year insurance policy
Posted on August 19th, 2008By Evan Lehmann
Climatewire: Snatching carbon dioxide from smokestacks and burying it deep in the ground is a cornerstone of the global effort to fight climate change. But experts are increasingly concerned about the absence of government rules — and insurance policies — that would guard against things like mass suffocation if the earth regurgitates its human-fed meal of CO2.
Answers are urgently needed about the risks posed by stashing huge amounts of gaseous carbon underground, the experts warn. Without assurances, potential developers could be hesitant to open subterranean projects that could leave them bankrupt from lawsuits or on the hook for a thousand years as the carbon slowly transforms into a harmless earthly ingredient.
It is perhaps the thorniest liability issue facing the nation since the 1950s, when the development of nuclear reactors redefined the meaning of man-made catastrophic risk — and raised the question of who, exactly, is responsible for the ultimate accident.
The capture, transportation and sequestration of carbon is considered less risky than a potential nuclear meltdown. But there are a host of complications with the process, not least of which is finding a steward that will last longer than many human lifetimes. Who will stand ready to compensate for the damage if the vast underground vaults supposed to contain the earth-warming gas leak? Will it be the power company that injects the carbon? Will it be the government?
Insurers, too, are looking doubtfully at the long time span, perhaps wondering if carbon grave diggers, or even commerce as we know it today, would still exist when claims might be made on a liability policy.
“They don’t know how to write a policy that goes on forever,” said Granger Morgan, lead investigator with Carnegie Mellon University’s CSS Reg Project, which is developing recommendations on how to regulate carbon capture and sequestration (CSS).
“The prospects for surface leakage is really quite low,” Morgan added, referring to the idea that carbon could break its chains, instantly suffocating humans and animals and reversing global strides to slow climate change. “But, you know, forever is a long time.”
The year 2108: Who pays to resurrect a town ‘demolished’ by carbon?
The asphyxiation of an entire town might be the most startling threat. But other risks include slow leakage, which could cause human health problems, affect plant life and degrade agriculture. And a large injection of carbon might spark a tremendous underground displacement that could pollute drinking water with a subterranean sea of salty brine, initiate ground heaves that sever the surface, or possibly even set off earthquakes.
Then there is the notion that a sudden large-scale release could undermine the globe’s fight against climate change, leaving a company or a country responsible for reversing years of worldwide effort to bottle up the gas. How do you say sorry for that?
“The liability implications are just enormous,” asserts Michael McRaith, the top insurance regulator in Illinois, a premier location for geologic carbon storage.
Those risks are unlikely to happen, however. The Intergovernmental Panel on Climate Change says there is a 1 percent chance that carbon would escape into the atmosphere from properly chosen and maintained vaults over 100 years.
But the uncertainty may be enough to chill big investments in CCS facilities. Tried and true risk measurements used by insurance companies afford risk protection by calculating and insuring against potential losses using the frequency of past events in a strict time period. None of these measures exists in CCS.
“I can see this being difficult for insurance companies to get their hands around. How do you quantify a policy over a huge amount of time?” said Christopher Walker, director of the Climate Group, a nonprofit that encourages businesses to reduce their greenhouse gas emissions. “There’s nothing, that I’m aware of, that has a history like that.”
Previously, Walker ran Swiss Re’s effort to develop business products that emphasized emission reductions. The company, one of the world’s largest reinsurers, has embraced efforts to stop climate change. But the long-term liability surrounding CCS is a stubborn problem.
“What if this is year 21 or year 22 [in a CCS policy], is someone still paying the premium? Will the policy be sufficient to pay claims after 100 years after a village is demolished?” Walker wonders. “There would be so many unknowns, I would be very reticent from an underwriter’s perspective.”
Are taxpayers on the hook for CCS?
But without some sort of insurance, carbon capture’s jump from the experimental stage to large-scale commercial projects could be frustrated, some experts warn. That could be a problem, because global goals of dramatically reducing emission levels depend on the technology for about 20 percent of the drop.
Scientists warn that emissions need to be reduced 80 percent to stabilize carbon dioxide concentrations and avoid the largest effects of human-induced climate change.
“I just don’t see how we get there without CCS,” said Morgan of Carnegie Mellon.
Momentum is pushing the federal government — and taxpayers — to absorb the role as final overseer of carbon capture projects. Supporters say it is the only entity with a lifespan fit for the task of picking up the pieces if something terrible emerges from an underground carbon vault that could span hundreds of square miles under the surface.
After all, it worked with nuclear power plants, supporters say. But the government’s role in back stopping a nuclear accident, even after 50 years, is still controversial.
Carbon insurance could resemble nuclear protections
Congress passed the Price-Anderson Act in 1957 as a temporary way to limit liability, alleviate concerns among nuclear developers and spur the construction of nuclear power plants across the country. The law is still intact, capping power companies’ share of a devastating accident at $95.8 million each. Because every nuclear plant in the country — there are 104 — would contribute to the cost of an accident, the private sector would provide about $10 billion before taxpayers stepped in and covered the rest.
Additionally, each plant pays about $400,000 a year for private “offsite liability” insurance worth $300 million.
Now some groups are pressing for similar arrangements for CCS projects.
“Because of the unknown risk — this could perhaps be catastrophic — you’d have to have some sort of overlying federal layer of protection,” said Tim Peckinpaugh, a lawyer-lobbyist for the nuclear industry.
“Otherwise they wouldn’t do it,” he said of CCS operators. “They wouldn’t go forward and capture carbon and put it deep underground unless they had some assurance that liability issues would not come back to bite them.”
Too much government oversight poses a ‘risk’
Most people agree that the federal government is the only realistic steward of sequestered carbon. But there is divergence about how much financial responsibility the government should assume — and when.
Texas, for example, offered to take on the full extent of risk as a bargaining chip in 2006 to lure the erstwhile FutureGen project, a government initiative to build a zero-emission power plant with carbon sequestration, to the Lone Star State. The project was ultimately chosen to be built in Illinois, which offered to accept any liability that private insurance wouldn’t cover, before it was canceled due to cost concerns.
But that freewheeling design could be dangerous, some experts warn.
“My sense is that you run a risk if the government assumes too much of this liability,” said Richard Newell, a professor of energy and environmental economics at Duke University. “If you insure someone against a risk, then they’re going to be less likely to take actions to reduce that risk.”
In other words, power plant owners might be less careful in selecting safe sequestration sites, more likely to disregard site monitoring and less likely to cover the costs of an accident if the government exerts too much control over a project too soon.
Elizabeth Wilson, an assistant professor of energy and environmental policy at the University of Minnesota, is considered a leading expert on CCS liability. In a paper to be published this fall in the Emory Law Journal, she suggests that the government step in 15 to 30 years after carbon injection stops.
But even then, private operators would be invested in the site, including providing money for potential accidents.
Carbon price, not liability answer, needed to spur CCS
None of this can take place until Congress passes legislation, however. That point came into sharp focus last month when EPA issued the nation’s first proposed regulations on carbon sequestration. Its only vehicle for overseeing carbon vaults comes under the Clean Drinking Water Act.
And the agency warned policymakers in an unusually clear voice that the drinking water law provides no way to transfer liability from a private carbon burier to the federal government.
Although the liability issue is an important element needed to accelerate the nation’s drive toward carbon capture, there is an even more dire decision that needs to be made, warns Wilson.
And that is making utilities pay — and pay a lot — for their carbon emissions. What’s the point? To make burying carbon cheaper than emitting it.
“Let’s be honest. With carbon capture and sequestration, the liability issue is not the reason they’re not being built today,” she asserted in an interview. “They don’t have to do it. I mean, you don’t do carbon capture and sequestration because it feels good. You do it to dramatically reduce your carbon dioxide emissions.”