Global CCS Institute - Day 2 - Panel 5 - Defining and Quantifying CCS Risk and Liability

PANEL 5

DEFINING AND QUANTIFYING CCS RISK AND LIABILITY Sandra Locke – Government of Alberta Chiara Trabucchi – Industrial Economics Chris Clarke – University College London

IEc

Valuation of Potential Risks Arising from a Model, Commercial-Scale CCS Project Site Insights & Findings

Chiara Trabucchi [email protected] 11 October 2012

INDUSTRIAL ECONOMICS, INCORPORATED 11 October 2012 | 3

Genesis of the CCS Valuation Study

• CCS processes create a suite of risks, including possible injury to private and public sector interests. These risks will continue beyond the operational life of the project.

• Analytic evaluation of the range of potential impacts can assist developers, regulators, insurers, financiers screen candidate sites, by illuminating:

- The dollar amounts that need to be managed.

- The set of circumstances under which amounts will present.

- The time frame over which these dollars will be needed.

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• Although the probability of a release may be small, prudent risk management requires estimates of the dollars required to remediate or compensate for harm, should a release occur.

- The analytic tools exist to estimate dollar values of potential damages.

- Damages are a function of location, plant design (fuel source, technology), and must be estimated on a site-specific basis.

• Study Goal. Derive a damages distribution for a CCS site.

- As a proof of concept, we estimate possible damages at the Jewett, Texas site considered by US DOE’s FutureGen project.

- Because harms are uncertain, we estimate ‘most likely’ damages (50th percentile) and ‘upper end’ damages (95th percentile).

Genesis of the CCS Valuation Study

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Conceptual Framework, Jewett TX Site

Damages Distributions

Treatment Costs, Lost

Income, Restoration Costs, CO2 Allowance

Costs

Monte Carlo Analysis

Human Health Effects

Other Environmental

Effects

Groundwater Effects

CO2 Leakage to Atmosphere

Pipeline Events

Sequestration Site Events

Type & Magnitude of Impacts

Event Types & Probabilities

Plant Events

Valuation

INDUSTRIAL ECONOMICS, INCORPORATED 11 October 2012 | 6

Estimated Damages Distribution, Jewett TX Site Total Damages, All Scenarios

There is a 50% likelihood that total damages will be less than $8.5 million ($0.17/tonne CO2)

There is a 95% likelihood that total damages will be less than $18.6 million ($0.37/tonne CO2)

• Includes CO2, H2S • Per ton values assume 50MMt CO2 stored • 100-year Time Horizon

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Estimated Damages Distribution, Jewett TX Site Total Damages, All Scenarios

CO2 Human Health CO2 Atmospheric Groundwater, Environmental H2S Human Health

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Estimated Damages Distribution, Jewett TX Site CO2 Only, All Scenarios

There is a 50% likelihood that total damages will be less than $7.3 million ($0.15/tonne CO2)

There is a 95% likelihood that total damages will be less than $16.9 million ($0.34/tonne CO2)

• CO2-related damages only (excludes H2S) • Per ton values assume 50MMt CO2 stored • 100-year Time Horizon

INDUSTRIAL ECONOMICS, INCORPORATED February 16, 2011 | 9 Do not cite, quote or release without permission and attribution.

Key Considerations & Analytic Drivers

• Preliminary damages estimates are presented in 2010 dollars, without adjustments for discounting.

- Notable challenges exist predicting how human health impact valuations observed in 2010 may change over the next 100 years.

• Damages estimates reflect a 100-year time horizon.

- We can delineate between operational and long-term care period.

• Three key drivers underpin the Monte Carlo results for the FutureGen Jewett, TX site, including:

- Composition of CCS stream - Event Probabilities - Site Characteristics (Plant, Pipeline and Sequestration)

INDUSTRIAL ECONOMICS, INCORPORATED February 16, 2011 | 10 Do not cite, quote or release without permission and attribution.

Key Considerations & Analytic Drivers

• The analysis does not address:

- Fines, penalties or punitive damages,

- Mitigation requirements or other impacts arising from facility construction or routine operation, and

- Private party damages.

• The analysis can be adjusted to consider potential damages relevant to private party loss as compared to public loss:

- Business Interruption, Trespass, Property Damage.

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Concluding Thoughts

• Successful proof of concept. Estimates of monetized damages, with associated probabilities for the Jewett, TX site.

- Monte Carlo approach provides a better foundation for understanding and managing risk than anecdotal methods.

• Analysis can be extended to other CCS projects, irrespective of location, and may serve as a useful site screening tool.

- Analysis can be extended to other climate mitigation technologies.

• Location, Location, Location

- Estimated damages are driven by plant and site-specific characteristics, and can vary by orders of magnitude.

- Well-sited, well-operated CCS projects have a relatively small potential for damages.

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This study was made possible by the support and contributions of the following organizations:

• CO2 Capture Project • Chevron • Duke Energy • Global CCS Institute • Government of Alberta • Integrated CO2 Network (ICO2N) • Natural Resources Defense Council • Southern Company • State of Wyoming • Wade, LLC • World Resources Institute

http://www.globalccsinstitute.com/publications/valuation-potential-risks-arising-model-commercial-scale-ccs-project-site

Project Sponsors

IEc INDUSTRIAL ECONOMICS, INCORPORATED

Chiara Trabucchi [email protected]

617.354.0074