The Texas Legislature Must Act To Protect The State’s Potential CCUS Prize

On the surface, getting a law put in place designed to facilitate the enormous economic opportunity Texas has where carbon capture, use and storage (CCUS) is concerned would seem like a no-brainer. Recent studies have pointed out that Texas and Louisiana are the two states whose geology presents the biggest potential opportunity to become home to the storage of an enormous volume of captured CO2. Most believe the Gulf Coastal region ranks among the biggest potential CCUS prizes in the world.

Companies like ExxonMobil XOM +0.1%+0.1%, Talos Energy TALO +0.3%+0.3%, Occidental Petroleum
OXY -0.1%-0.1% and others have been busy developing plans to exploit Texas’s unique combination of
industry, existing infrastructure and geologic pore space as soon as the rules are clarified. And the public
is on-board as well. A poll conducted last year by the Carbon Neutral Coalition found that 66% of Texas
voters support CCUS in the state, while just 19% oppose it.

The Legislature Has One Job To Do

So, members of the Texas legislature have just one job to do here: Pass legislation that provides clarity
on the rules of the road. But things are seldom so simple in Texas politics, especially related to a bill that
attracts a wide variety of potential stakeholders to the debate, one in which powerful interests like the
state’s big landowners, agricultural interests and the oil and gas and manufacturing industries are all

Among several key issues at hand is underground pore space, and the need to clarify the terms of
ownership of it, which is a big part of what SB 2017 is designed to resolve. The bill’s author and lead
sponsor, Sen. Robert Nichols, a Republican whose district encompasses a big piece of East Texas,
describes the issue in the bill’s summary: “Texas law and policy must be updated to accommodate
industry’s ability to permanently store carbon. Twelve other states have already passed legislation to
facilitate carbon storage. Texas is behind these states in the development of this emerging industry,
which analysts estimate to be a multi-trillion dollar industry that also provides additional revenue
opportunities for landowners.”

The list of those 12 other states who are ahead of Texas on clarifying the matter include bordering states
of Oklahoma, and perhaps most importantly from a competitive standpoint, Louisiana. A failure by this
session of the legislature to add Texas to that list could well result in the loss of some projects currently
planned for Texas to other states. This is especially true of Louisiana, where the state’s application for
Class VI primacy with the EPA is at an advanced stage, and EPA is scheduled to complete its review in
May. By contrast, Texas’s application is still in the “pre-application” phase.

The extents of underground geologic formations don’t follow the boundaries of land ownership, but in
order to mount a successful carbon storage project, the operator must be able to control the entire
formation in question. For storage projects offshore in the Gulf of Mexico, this is a comparatively simple
proposition, consisting mainly of obtaining the needed permits from either the State of Texas or the
federal government. But there could be dozens, even hundreds of surface owners involved in any
onshore project, depending on the proposed location.

Few involved in the process understand the varied interests and perspectives at play better than Todd
Staples, a former Texas Agricultural Commissioner and state senator who is now the President of the

Texas Oil & Gas Association. In a call on Thursday, Staples said he sees the bill as a potential win for all
parties. “This is an opportunity for landowner revenue that would be totally unimpactful to their surface
estate,” he says, adding, “The proposal before the legislature is a very thoughtful process that is designed
to accommodate the needs of landowners and to allow the industry to produce the jobs and investment to grow in Texas rather than competing states.”

Of the dozen other states that have already enacted this kind of clarifying statute, Staples points out that
“some states allow eminent domain to be used to acquire the pore space that is necessary. Louisiana and
Alabama both do. Texas does not, and that is not being asked for.”

While not specifically endorsing SB 2017, John Colyandro, Executive Director of the Carbon Neutral
Coalition, agrees that clarification is needed. “CCUS is essential to meet market demand for lower
carbon-intensity products, and, though it often goes unnoticed in this discussion, CO2, whether
manufactured or otherwise, is an essential element for so many products that we use today,” he says.
“Research is underway for other uses of captured CO2 which has tremendous potential. So, there is a
long-term economic development opportunity from capturing and storing carbon for other uses today that we can’t even imagine.

“Texas, however, is behind the curve in terms of developing the legal and economic framework that would
accelerate the expansion of CCUS in Texas.”

A Needed Compromise on Integration

Mississippi, one of the early states to act to clarify its own laws, adopted a 51% threshold for integration.
That’s the same threshold for public votes used by Texas water districts to impose restrictions related to
control of drinking water formations and other related issues. In fact, of the 12 states with laws on the
books, the average threshold for integration is about 54%, with a median of 60%. As a compromise,
Senator Nichols recently suggested a higher threshold of 67%.

But at least one landowner group involved in the legislative debate advocates imposing an integration
threshold that would require approval by 80% of landowners involved. One agricultural group even
suggested that dissent by a single landowner should be allowed to veto a project. Enacting such a high
requirement would effectively eliminate a significant set of potential projects, along with their economic
and jobs impacts, from consideration.

From the standpoint of the state’s economic interests, the loss of this opportunity would seem to make
little sense. “Texas is unique in that it has robust energy and manufacturing industries that employ
hundreds of thousands of people, and carbon storage will help to maintain and expand businesses and
jobs,” Staples says. “The Texas economy should not miss out on the vast opportunities of jobs and
investment this industry can bring to our state.”

Bottom line

Texas is famous for authorizing its legislature to meet only in odd-numbered years in sessions that last
just 140 days. Texans like to joke that the less time the politicians have to meet in Austin, the safer the
rest of us are. But, of course, what this means is if members fail to approve CCUS legislation this time,
they won’t have another shot at it until 2025.

The story of every session ends up being a tale of great successes, grand failures and missed
opportunities. A failure by this year’s session to enact legislation designed to pave the way for the state to
capitalize on its enormous CCUS potential would represent one of the great missed opportunities in the
state’s history.

David Blackmon is an energy-related public policy analyst/consultant based in Mansfield,

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