Two days before the end of the 2009 Legislative Session, the Louisiana Legislature adopted the Louisiana Geologic Sequestration of Carbon Dioxide Act. Introduced as HB661, the final amended bill passed both the House and Senate unanimously. There are three major facets to the law: establishment of a comprehensive regulatory program for the control of injection, storage, and use of carbon dioxide under the auspices of the Office of Conservation within the Department of Natural Resources; establishment of liability limits for operators with transfer of liability for storage operations to the Geologic Storage Trust Fund (run by the state) after a specified time; and authority for expropriation of pipeline servitudes, storage facilities and other associated facilities necessary for carbon sequestration operations upon a determination of public convenience and necessity.

The regulatory program authorizes the Commissioner of Conservation to adopt rules for injection and storage of carbon dioxide, consistent with the anticipated U. S. Environmental Protection Agency rules for Class VI injection wells under the Safe Drinking Water Act. It also extends the Commissioner’s authority over use of carbon dioxide for enhanced oil recovery. The rules are to prevent the escape of carbon dioxide to fresh water and to protect oil, gas, and other mineral resources. The Commissioner is given authority to issue compliance orders and civil penalties of up to $5,000 per day of violation.

The legislation transfers liability for long term storage (with a few exceptions) to the State ten years after the completion of injection, thus providing more certainty to encourage storage of carbon dioxide that will in turn assist in combating global warming. The ten year period can be altered by rule. To fund this potential liability, the law creates a Geologic Storage Trust Fund that will be funded by fees to be paid by the injection well operator. Until liability transfers to the state, the operator of the injection well, and only the operator, will be liable for compliance with injection and storage requirements. The fiscal note for the bill indicates that LDNR intends to use four full time persons to implement the program – an attorney, a geologist, and engineer, and an administrative assistant. Until the Geologic Storage Trust Fund is funded, operating funds will come from the Oil and Gas Trust Fund.

The law provides that the injected carbon dioxide will “at all times be deemed the property of the party that owns such carbon dioxide, whether at the time of injection, or pursuant to a change of ownership by agreement while the carbon dioxide is located in the storage facility…and in no event shall such carbon dioxide be subject to the right of the owner of the surface of the lands or of any mineral interest therein….” This occurs until ten years after the cessation of injection operations, unless a different time period is specified in the rules. At such time, the Commissioner will issue a certificate of completion of injection operations, upon a showing by the storage operator that the reservoir is reasonably expected to retain mechanical integrity and the carbon dioxide will reasonably remain emplaced. Upon issuance of the certificate, both liability for, and ownership of, the remaining project, including the stored carbon dioxide, transfers to the state. The liability release does not apply if the owner, operator, or generator intentionally and knowingly concealed or intentionally and knowingly misrepresented material facts related to the mechanical integrity of the storage facility or the chemical composition of any injected carbon dioxide.

The law allows property to be expropriated by private entities for the underground storage of carbon dioxide, “including but not limited to surface and subsurface rights, mineral rights, and other property interests necessary or useful for the purpose of constructing, operating, or modifying a carbon dioxide facility.” However, before any expropriation, the Conservation Commissioner must issue a certificate of public convenience and necessity after a public hearing in the parish where storage operations are located. As a condition precedent, the Commissioner, must have determined that the reservoir sought to be used is suitable and feasible for such use and meets all regulatory requirements. The eminent domain authority is to be exercised pursuant to the procedures found in existing law regarding expropriation, La. R.S. 19:2,

No sequestration operation can adversely affect any reservoir which is producing or is capable of producing oil, gas, condensate, or other commercial minerals in paying quantities, unless all owners in such reservoir have agreed thereto or, if all owners do not agree, then at least three-fourths of the owners must agree and the Commissioner must find that the minerals capable of production in paying quantities have been produced or the reservoir has a greater value as a reservoir for carbon dioxide storage than for the production of the remaining volumes of original oil, gas, condensate, or other commercial minerals.

The legislation has been sent to the Governor for final signature. If signed, it will become effective on August 15, 2009.