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Who Owns Pore Space for Geologic Carbon Sequestration? Renewed Focus on Carbon Capture and Storage Likely to Bring Ownership Uncertainties on Western Split-Estate Lands Back into the Picture

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by John W. Andrews

The omnibus appropriations legislation passed by Congress in December 2020 contained notable bipartisan energy initiatives, including extension of tax incentives for renewable energy development, energy efficiency, and energy storage.  In light of Congress’ strong interest in addressing climate change, the energy package also focused on the capture of carbon dioxide from industry and power generation, and potential long-term carbon storage through geologic sequestration and other means.  These provisions included extension of the existing Section 45Q tax incentives for carbon capture and storage (CCS) projects by two years, and study of “blue” hydrogen – hydrogen generated from natural gas and paired with CCS.  The new Biden administration has also expressed support for further advancing CCS as part of its focus on climate and energy issues.

Geologic sequestration of carbon dioxide – pumping captured CO2  at high pressure into deep geologic formations or deep saline aquifers –  is regulated by the Environmental Protection Agency under Class VI underground injection permits issued under the federal Safe Drinking Water Act.  However, the regulatory aspects of sequestration – how to safely inject CO2 and, more importantly, hold it indefinitely over geologic time – are accompanied by potentially difficult issues of real property law, not least the question of who owns the geologic formations where carbon will be sequestered, for purposes of obtaining the rights to undertake that sequestration.

In much of the United States, it is common for mineral rights to have been severed from surface ownership by prior reservation, leaving surface and mineral ownership in separate hands.  In the public land states of the western United States, the “split estate”  issue largely arises from federal land disposition laws, most notably the Stock-Raising Homestead Act of 1916, that expressly reserved minerals to the federal government in over 50 million acres around the west.  Where the mineral estate is owned by one entity, and the surface lands by another, who owns the rights to permit another to inject CO2  into the subsurface formation, or to allow the migration of CO2 injected elsewhere onto the property?  Does the fact that the United States is the mineral owner change the equation?

Most historic legal cases over split-estate injection rights involved the use of depleted natural gas fields for the injection and seasonal storage of natural gas.  Courts in these cases have generally concluded that the use of geologic pore space is not associated with the mineral estate, since the pore space represents the absence of minerals, and that the surface owner therefore owns geologic storage rights.  This conclusion has been sufficiently widespread among state court decisions as to be called the “American rule” (English courts having adopted the opposite conclusion).  In other situations, for example the construction of solution-mined caverns in subsurface salt deposits, ownership of void space has been held to be an attribute of the mineral estate.  There is enough nuance in the law of individual states that broad conclusions are difficult to draw without substantial local law research.

When federal or state ownership is involved, additional considerations apply.  The U.S. Supreme Court’s long-standing position, first expressed in 1983 in Watt v. Western Nuclear Corp., is that because the Stock-Raising Homestead Act (SHRA) was solely intended to convey lands for surface purposes (i.e. ranching), the corresponding reservation of minerals to the United States was to be broadly construed to include everything else, in that case ordinary sand and gravel.  While no federal cases have directly addressed whether geologic pore space used for sequestration or storage purposes was within the SHRA mineral reservation, the Alaska Supreme Court has convincingly applied the concept to mineral reservations in state land conveyances.  If the Watt principle were applicable to federal and state split-estate lands, considerably over 50 million acres around the western United States where the surface estate has been conveyed to other parties, but the mineral estate reserved to federal or state government, would require consent of the government landowner for sequestration activities.

Several western state governments (Wyoming, North Dakota and Montana) have attempted to resolve the split-estate issue by enacting the American rule – that the surface owner owns pore space and related rights – into state statute, but the applicability of these statutes to federally-owned mineral estates is uncertain.  Federal legislation in the 111th Congress (S. 1856) would have applied the American rule to federal public lands and reserved mineral estates, but never progressed legislatively.

There was considerable interest in carbon sequestration in the early 2010s, which included several private business entities actively acquiring private and state geologic carbon sequestration easements on substantial acreage across the western United States.  With reduced federal government support of CCS during the Trump administration, and several well-publicized technical failures in CCS test projects elsewhere in the country, business interest in obtaining land rights for CCS waned, and most private CCS easements presumably lapsed.

In 2021, with new legislative and executive support for CCS, it seems likely that prior interest in obtaining land rights for geologic carbon sequestration in the western U.S. will be revived. That interest will need to be accompanied by serious examination of the real property laws of the project location, as uncertainty remains on ownership and permitting authority for CCS on split-estate lands.