The environmental movement to regulate CO2 emissions across diverse industries is gaining momentum in the U.S., but it is creating uncertainty for many executives and their lenders.

"This is a pioneering industry, and you can be one of two kinds of pioneers," Stephen Melzer, principal of Melzer Consulting, Midland, Texas, told attendees at the Carbon Sequestration Development & Finance Summit in Houston recently. "One kind is standing on a ridge, overlooking a valley, and seeing all the vast opportunities and possibilities. The other kind of pioneer is lying face down in the mud with arrows in his back. You have to decide which one you want to be."

E&P companies have been sequestering CO2 in depleted oil reservoirs in connection with their enhanced oil recovery (EOR) operations for some 35 years, but other industry leaders have little or no experience in processing, injection, transportation and surveillance technologies needed to comply with possible government restrictions.

The uncertainty of future state and federal polices, ambiguity of storage strategies and a nearly nonexistent transportation infrastructure are pushing reluctant chief executives into unknown frontiers. But ignoring looming carbon-emission regulations is not an option. Some say a cap-and-trade type of market will be needed. Others want to monetize captured CO2, but a commercial market must be made.

Most lenders and investors hesitate to be involved due to the lack of substantive information.

"Investors and lenders can be overwhelmed with the uncertainties, both technical and political, in the face of an emerging CO2 sequestration industry," Melzer said. There is a lack of technically trained personnel and educators. Technology, costs, government regulations, safety and environmental, and monitoring systems are unknown and untested in the sectors outside of traditional EOR.

Coal-burning power generators are at the forefront of vulnerable businesses, but ethanol plants, cement manufacturers, and plants for coal-to-gas or -liquids, ammonia, ethylene oxide and hydrogen facilities are also high carbon-emitters. These businesses have little or no experience in large-volume CO2 sequestration. And the volumes will be huge, Melzer said.

Recycling CO2 from power generators to EOR fields is not a viable option at this point.

To be economically feasible, specially built pipelines must be in place, and for the most part, they aren't. CO2 must be pressurized to high density to be economically transported by pipeline, and natural gas pipelines cannot be switched into CO2 service because they are not built for such high pressure.

EOR fields do have the right type of pipeline, but they are localized. There are more than 3,500 miles of commercial CO2-service pipelines in the U.S. today. Systems to reduce corrosion, degradation and microbial activity, as well as necessary safety procedures, are in place.







"Industry leaders should realize we are not starting from zero," Melzer said. "CO2 sink operations and pipelines exist in Wyoming, North Dakota, Colorado, New Mexico, Texas, Oklahoma, Mississippi, Michigan and some northeastern states, and we can learn from them."

Still, future risk and liability issues can keep the financial community at bay, forcing government agencies to step in and create an artificial market through subsidies and tax incentives. While that may not be a good idea in the long run, for now it can help.

"Regulatory frameworks can be a barrier or a facilitator. State agencies need to weigh health, safety and environmental issues against commercial needs and interests, somewhat like the Texas Railroad Commission does," Melzer said.

They can help by creating state or federal programs to certify some companies as "clean," particularly those that capture and sequester CO2, and offer incentives in the form of ad valorem and severance taxes. Capture credits should be applied regardless of sink type, he said.

But, government can be restrictive, resulting in high energy costs or energy shortages, inflationary pressures and business-planning uncertainty. To ensure workable legislation, it's imperative that EOR-experienced engineers be involved in any policy-making decisions.

Melzer advises that the path forward is through encouraging incentives for sources and sinks, using EOR experience, and addressing permitting, risk and liability issues head-on.

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