How to Cash-in: Carbon Sequestration Rules - Already On the Books In Oklahoma

           Building upon our November, 2023 article exploring the expanded benefits for carbon capture and sequestration under the Inflation Reduction Act, this article delves into Oklahoma’s existing framework for carbon capture and sequestration. Oklahoma has enacted two statutes on carbon capture seeking to be a leading force in the field of carbon capture and sequestration. The Oklahoma Carbon Sequestration Enhancement Act (“OCSEA”) incentivizes practices that enhance soil carbon sequestration through improved agricultural and land management techniques.[1] Additionally,the Oklahoma Carbon Capture and Geologic Sequestration Act (“OCCGSA”) regulates underground injection projects, encouraging environmental safety and fostering responsible development.[2]

           The Oklahoma statutes focus on three different methods of carbon sequestration: soil sequestration, forest sequestration, and geologic sequestration. Soil sequestration involves enhancing the natural ability of soils to absorb and retain carbon dioxide through practices such as no-till farming, cover cropping, or composting. Forest sequestration involves increasing the carbon storage capacity of trees and plants through afforestation, reforestation, or improved forest management. Geologic sequestration involves injecting carbon dioxide into underground formations, such as depleted oil and gas reservoirs, saline aquifers, or coal seams.

The Oklahoma Carbon Sequestration Enhancement Act

           Enacted in 2001, the OCSEA’s general purposes are to promote environmental stewardship and natural resource conservation, create economic opportunities for landowners and resource managers, contribute to climate change mitigation by enhancing carbon sequestration, and position the state of Oklahoma as a leader in the emerging carbon management market. Further, the OCSEA gives authority to the Oklahoma Conservation Commission (“Conservation Commission”) to establish rules and regulations governing carbon sequestration programs in Oklahoma.[3] When first enacted, the OSCEA did not seem to contemplate injection of carbon dioxide into oil and gas wells; however, the law was amended in 2003 to provide for the injection of carbon dioxide into marginally producing and/or abandoned oil and gas wells. Subsequently, the OCCGSA was signed into law in order to more directly deal with geologic carbon sequestration.

The Oklahoma Carbon Capture and Geologic Sequestration Act

           The OCCGSA was enacted in 2009 with the further goal of regulating the underground injection of captured carbon dioxide and ensuring its safe storage. The Oklahoma legislature found that “[s]torage of carbon dioxide in geological formations is an effective and feasible strategy to deposit, store or sequester large volumes of carbon dioxide over long periods of time” and that “[i]t remains in the public interest for carbon dioxide to be injected underground in this state.”[4] The OCCGSS establishes guidelines and monitoring protocols for the responsible advancement of geologic carbon sequestration.

           The OCCGSS divides the jurisdiction of geologic carbon dioxide injection between the Oklahoma Corporation Commission (“OCC”) and the Oklahoma Department of Environmental Quality (“DEQ”).[5] The OCC “shall have exclusive jurisdiction over [carbon dioxide] sequestration facilities involving, and injection of [carbon dioxide] for carbon sequestration into, oil reservoirs, gas reservoirs, coal-bed methane reservoirs, and mineral brine reservoirs. The [OCC] shall have such jurisdiction regardless of whether such [carbon dioxide] sequestration facility or other injection of carbon dioxide involves enhanced oil or gas recovery.” Conversely, the DEQ “shall have exclusive jurisdiction over [carbon dioxide] sequestration facilities involving, and injection of [carbon dioxide] for carbon sequestration into all reservoirs other than those described in subsection A of this section [i.e., OCC jurisdiction], which shall include, but not be limited to, deep saline formations, unmineable coal seams where methane is not produced, basalt reservoirs, salt domes, and non-mineral bearing shales.”[6]

           Currently, the OCCGSA requires an operator of a carbon dioxide sequestration facility to acquire a permit from the appropriate agency (DEQ or OCC) prior to commencing carbon sequestration. Further, the permit application is subject to a hearing before the applicable agency with at least 15 days’ notice of such hearing to the surface owners and all mineral owners (including all working interest and royalty owners) of the land encompassed within the geological boundary of the carbon sequestration facility.[7]

           The OCC and DEQ do not appear to have specific regulations related to carbon sequestration at this time. However, to advance the goals articulated in the OCSEA and OCCGSA, the Conservation Commission has in place specific regulations that govern carbon sequestration activities. The regulations can be found at 155 OAC §§ 30-1-1, et seq. (the “Regulations”).[8]

The Regulations

           The Regulations establish a framework for regulating carbon sequestration in Oklahoma. They define key terms and concepts, such as carbon offset credits, aggregators, verifiers, and sequestration projects. The primary focus of the Regulations is to outline the application process for carbon sequestration and establish the appropriate fees associated with carbon sequestration. Under the Regulations, there are three major types of applications that are required. Each application has its own unique aspect of carbon sequestration, and those major applications include: aggregator applications, verifier applications and sequesterer applications.

           Aggregators are defined as the administrative representatives that act as intermediaries between the carbon offset sellers and buyers.[9] They pool the carbon offsets, which are units that represent a reduction or removal of carbon dioxide, to sell in the market. Verifiers are defined as commission-approved individuals that confirm the accuracy of the sequestration. They verify the amount and type of carbon dioxide that is captured and stored, as well as the monitoring and reporting procedures.[10] Sequesterers are defined as the persons or entities that obtain the carbon offset credits by sequestering carbon dioxide in soil, forests, or geologic formations.[11]

           The Regulations attempt to establish standards and criteria for each type of sequestration. For soil sequestration, the regulations identify the eligible land uses and practices, such as conservation tillage (i.e., no-till farming, cover crops, or rotational grazing) and grassland establishment, that can enhance the soil's capacity to store carbon. For forest sequestration, the Regulations define the eligible forest types and management practices, such as afforestation, reforestation, or improved forest management, that can increase the forest's carbon stock. For geologic sequestration, the Regulations state that only anthropogenic (man-made) carbon dioxide is eligible for verification; however, a review of the Conservation Commission’s application indicates that an operator must include certain site selection and characterization criteria, such as geological suitability, injectivity, capacity, and containment, that can ensure the safe and permanent storage of carbon dioxide underground. Unfortunately, the regulations as currently written lack clarity, granting broad discretion to the Conservation Commission, DEQ,and OCC. In fact, DEQ and OCC have, at this time, no regulations specific to carbon sequestration. This lack of clear guidance by the agencies can create significant roadblocks for sequesterers and contradict the core objectives of the OCSEA and OCCGSA. Fortunately, change appears to be on the horizon.

Conclusion    

           Oklahoma has great potential for carbon sequestration, especially in the oil and gas sector. Further, the OCSEA and OCCGSA have positioned Oklahoma to easily become a leader in the carbon management market. Yet, the regulatory landscape for carbon sequestration is not static and there are new developments and challenges that could affect how carbon sequestration is governed in the near future. For instance, there was a state bill from the 2023 Oklahoma legislative session that was signed into law requiring that DEQ and the OCC look into the regulation and application process for carbon sequestration and ensure that it is in compliance with the Inflation Reduction Act and other federal law. This bill amended the OCCGSA, effective in June 2023, and aims to reduce regulatory burdens and costs for businesses and consumers.[12] How these changes will affect the regulatory landscape is yet to be seen; however, the focus of the update, if any, is expected to involve updating the Regulations controlling the injection of carbon dioxide into geological formations in order to allow Oklahoma (as a state) to self-regulate Class VI injection wells.[13] This has the potential to significantly decrease the regulatory burden for operators wishing to take advantage of the new incentives made available under the Inflation Reduction Act –  further distinguishing Oklahoma as a standout state for carbon sequestration. If you have any questions, please do not hesitate to contact us at Pray Walker.

[1] 27A O.S. §§ 3-4-101, et seq.

[2] 27A O.S. § 3-5-101, et seq.

[3] 27A O.S. §§ 3-4-105.

[4] 27A O.A. §§ 3-5-101.

[5] 27A O.A. §§ 3-5-103.

[6] Id.

[7] 27A O.S. § 3-5-104(D).

[8] 155 OAC §§ 30-1-1, et seq.

[9] 155 OAC §§ 30-1-2.

[10] Id.

[11] Id.

[12] 27A O.A. §§ 3-5-104.

[13] SB 200: Oklahoma Carbon Capture& Geological Sequestration Report (July 31, 2023).